Will Oil’s Price Slump Be Worse For The Economy Than Coronavirus?
For some, the oil price slump has meant that there is somewhat a silver lining to the coronavirus pandemic, with us now all being cooped up at home and having to spend less on fuel and heating over the summer months. However, that’s not that case for all. Energy analysts have said that whilst there is little upside to the unprecedented plunge in oil and gas prices, it has now seen oil futures spiral into negative territory. There is hope that with the winter months now settling in, that oil demand will grow putting less strain on the industry.
In recent months, if you are a motorist, you may have seen a slight drop in prices at the pump. However, this is not the full extent of the issue. There has been a sharp decrease this year in oil and gas prices and that has not been necessarily reflected at the pump as you might think that it would. When we think of oil and gas we always think first of petrol/diesel prices or our energy bills, but even with a price slump now you won’t necessarily see this reflected to the consumer.
We are increasingly at the “Negative oil” stage which is more theatrical than actual. Whilst this suggests that the seller would have to pay the buyer to physically take the oil barrels off their hands it is largely to do with a paper translation and oil futures contracts. As the pandemic has gone on oil and gas demand has plummeted with factories closing and the world coming to a standstill almost. Producers are simply running out of places to store the oil once it’s left the ground meaning they have had to resort into selling off barrels much more cheaply which has ultimately put oil futures at risk too.
To put it simply, countries buy oil to deal with the demand of their country. So those countries who sell their oil to others will see the price per barrel decrease, meaning less revenue for that country which has a knock on effect and so on.
Oil futures are incredibly important to the economy and it is thought that if prices don’t start to regain stability, the energy sector won’t be able to bounce back this time. We could even see interest rates plummet even further and banks could suffer the consequences.
Needless to say the oil and gas industry isn’t the only industry to have taken a hit during these uncertain times. Almost every industry has taken a hit one way or another, and it is likely that companies that deal with oil and gas will see their employment under increased pressure until futures prices start to rise again above $40 per barrel.
With coronavirus still very much impacting the whole world it is likely that the oil and gas prices crash will linger well into 2021, even with the hope of a new vaccine almost available. Only time will tell.