Major news yesterday as oil futures crashed over 300%. Futures are speculative investments, derivatives that should be illegal. It is simply a bet and does not involve the physical movement of a product, yet it certainly affects the physical price of products.
Due to these futures contracts, billions of dollars traded hands yesterday. This an unprecedented event.
Today, June oil future contracts are at $12.76 a barrel as of this writing. Meaning, they have risen in value from below zero.
WTI crude oil futures settle at -$37.63 per barrel – Down $55.90 on the day, some 305.97%#OOTT #WTI #Crude #Oil #Coronavirus $USO
— OilPrice.com (@OilandEnergy) April 20, 2020
Oversupply Of Oil
The problem we are seeing is an oversupply of oil, and storage for this oil is running out. This has been brought about by governments shutting down the world over the Coronavirus, a virus with a .2% mortality rate.
It should be noted, just weeks ago Russia and Saudi Arabia supposedly had an oil war. They both continued to pump oil out of the ground at levels required for full world production. Yet, the world stopped, so that abundance of oil has now hit the markets.
Finally, both nations did pull back production, though all that oil is now hitting the markets with no where for it to go.
These massive fluctuations in oil are destroying the income of nations who rely on oil to finance their government. Nations like Iran.
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President Trump Responds
U.S. President Donald Trump has already stated,
We will never let the great U.S. Oil & Gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!
— Donald J. Trump (@realDonaldTrump) April 21, 2020
So if needed, there will be more bailouts. Everything is being bailed out at this point, with money that has no value. The news will only continue to move at this rapid pace. You should quite literally be prepared for anything at this point.
What It Means
Prices at the pump will no doubt continue to fall as they have been. However, if the lockdowns remain in effect, how much good is that cheap fuel?
Looking at this from a bigger scale, numerous towns and communities around our nation exist due to oil under their soil. Texas and North Dakota come to mind. If the prices continue to dry up, so will more jobs and business which means more companies and people will need to be bailed out.
This is not looking good.
As the Coronavirus Pandemic continues to move past us, meaning, the lockdowns are begin to fade, we will be presented with more economic uncertainty.