WTI dropped below zero: what does it mean?
Big news shake financial markets more and more often. This time oil is once again the news maker.
The first glimmer of hope in oil industry
Observing news today one can easily get disappointed. All see significant surpluses in global oil markets throughout 2020. This is partly due to increased production in Saudi Arabia and Russia, two of the world’s top three oil producers, and, perhaps more significantly, to Covid-19 destroying demand.
However, things are getting better.
Firstly, due to the upcoming US deal on a $2 trillion coronavirus aid package, the economic impact of the outbreak will be blunted. As a result, it will support oil demand.
Secondly, the U.S. signaled the possibility of a joint U.S.-Saudi Arabia alliance to stabilize prices.
We already can see the outcome: oil prices rose on Tuesday. Oil still matters enormously to the global economy. That is unlikely to change for the next decade and beyond, despite mounting concerns over fossil fuels and climate change and increasing talk of a post-carbon future.
Every day, the world consumes about 97 million barrels of oil. By the year 2030, according to the International Energy Agency, the world is likely to hit a daily consumption of 105 million barrels of oil. Even if this growth in demand flattens out in the 2030s, as is widely forecast, oil will continue to play a key role in our global economy into the 2040s.
In the end, oil markets will probably stabilize, because they always do. The coronavirus will be brought under control and demand for oil will climb again.
All of this should be good (long-term) news for Middle East, Russian and US oil producers, though it may be difficult to see that silver lining amid today’s dark clouds. The oil market quietly moves on, gyrating wildly at times, but still fueling our modern economy – at least for another couple of decades.
At the monet of writing, Brent managed to return above $27 a barrel, while WTI traded above $22 a barrel.
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