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The price of oil has hit historic lows today. Negative infact showing that the storage of the oil is the real problem for some people. We dig into some of these details here.

 

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Episode 023 – Oil Impact

This is Market Insights from Southwest Investments, where we dig into current events and how they affect the markets but also how they might impact your financial future.

 

Rick:                 Thank you for joining us. Today is April 20th 2020. Joining me today is Bart Schannep. Bart, welcome.

 

Bart:                 Thank you Rick. Good to be here.

 

Rick:                 Fantastic. One of the things that has happened today, it’s the end of the day today. Normally we do these in the morning, but today is interesting. We’ve been able to take it in the afternoon, and we notice some really interesting things on oil.

 

Bart:                 Right.

 

Rick:                 It has made a dramatic impact on the market today. Let’s dig into some of those details.

 

Bart:                 Absolutely. On Friday I saw in the paper that oil hit an 18-year low in price. Then I saw on Saturday we hit a 22-year low on oil in price.

 

Rick:                 Today it was really interesting as well. Now, granted today was very unique because it was the last day of the month, so the contracts today really are maybe overemphasizing price, but it got really low, down to $5 at one point a barrel.

 

Bart:                 A barrel. That’s unbelievable. It didn’t seem like it was all that long ago it was $100 or more a barrel. Time flies when you’re having fun or paying for gas at the pump. I will tell you what’s going on is just before the coronavirus hit, there was a push-me-pull-you argument between Saudi Arabia and Russia over oil.

It’s the supply and demand of normal general economics. You want supply and demand to be somewhat on par with each other, but if supply increases, demand prices fall. That’s what’s been happening. Well, Saudi Arabia asked Russia to reduce their output of oil, and Russia said no and insisted that Saudi Arabia reduce their output of oil. Saudi Arabia said no, and then it just became a pushing match.

Well, it didn’t end well. It ended with Saudi Arabia throwing up its arms and saying that they have decided they are going to pump as much oil as they can. Now, the big elephant in the room is the United States. We’re the largest consumer of oil, but we are now also one of the largest producers of oil.

 

Rick:                 That’s only relatively recently as the shale…

 

Bart:                 Fracking.

 

Rick:                 Fracking has come up.

 

Bart:                 Whether you like in favor of fracking or not makes no difference. It’s a big mover in the world’s economy.

 

Rick:                 It has a price point.

 

Bart:                 It does have a price point. There’s a breakeven point.

 

Rick:                 Right.

 

Bart:                 Saudi Arabia has the lowest. Well, with Saudi Arabia pumping oil like crazy, they filled eight tankers with 40 million barrels of oil that are just about to hit the U.S. Louisiana or Texas coast. When those 40 million barrels come onboard in the United States, we don’t really have any place to put it.

 

Rick:                 That’s the real key right now. The demand for the oil…

 

Bart:                 Has dropped dramatically where if we’re all staying at home, then we’re not on airplanes. We’re not driving cars. We’re not driving trucks. Okay. Transportation is the main use of oil in our country. We’re not using it as much, nearly as much. Demand is down dramatically.

Local producers are still producing oil, and now we’ve got all this other oil that’s been paid for coming over from Saudi Arabia. It is going to flood the U.S. market with oil. We are awash in oil, no place to put it and at the moment, no demand for it. Quite a conundrum.

 

Rick:                 To finalize, the demand has dropped so dramatically. We had Saudi and Russia oversupplying.

 

Bart:                 On top of our own.

 

Rick:                 On top of our existing amount.

 

Bart:                 Supply.

 

Rick:                 That is where the prices are being driven, supply and demand.

 

Bart:                 Supply and demand.

 

Rick:                 Thank you so much, Bart, for that information. We hope that you enjoyed it. Please like us on Facebook and come to our video page to check out the latest that we’ve got. Thank you so much.