Oil Prices Still Pressured
8 26 AM CST Friday March 27 2020
Never let a crisis go to waste.
Rahm Emanuael, Former Chicago Mayor
Oil prices have fallen again this morning to $21.73 down almost a dollar from yesterday. And no wonder. The energy industry is reeling from lack of demand and too much supply. And the supply situation is only getting worse.
Echoing Rahm’s sentiment, the Saudis are planning on expanding oil production by 2.5 million barrels a day in April. Russia is still refusing to cut output. This is a continuing push to stamp out US Shale production.
The Texas Railroad Commission is considering limiting production in the state. But at a time when companies are pressed for cash, that will only continue the pressure the industry is enduring.
The Democrats in Congress responded in kind packing jet engine emissions and $25 M for the Kennedy Center into the $2 trillion stimulus package. The really bad news is that future attempts to throttle this kind of waste back will result in shouts that the Republicans are engaging in ‘cruel’ (latest word for Rs) cuts to consumers.
The $600 per week added to the unemployment package will result in some making more than if they were working. That occurred during the 2008 recession and was a reason the recovery we so slow.
President Trump will cease using the phrase China Virus. China has complained of that label though the problem clearly started in their country.
With 3.28 million unemployment claims there can be no doubt we are in a ‘recession.’ Generally that is two quarters of economic contraction.
Around the world social mood trends negative with finger pointing about the cause and location of the virus and energy demand.
One can read the statistics on this slowdown just about anywhere. The only real cure is not spending $2 T Congress did not have. Rather everyone needs to go back to work in spite of government mandated shut-downs. And yes there are deaths from this coronavirus but every year about 23,000 die from some sort of flu.
I am wondering how the danger of random exposure will affect future behavior. Will the cruise, airline, hotel, restaurant, and movie industries be permanently affected? What about the already declining retail shopping malls?
It seems reasonable to expect that individuals will be more reluctant to quickly begin gathering again. And that in itself will slow the chances of a speedy recovery.
Insider buying helped spur a three day 20% rally. But prices are falling again this morning with the DJIA down about 800 points.
Be prepared for a lengthy downturn.
Wonderful take on what's happening. Seeing oil prices fall day after day is quite frightening. My family's business is oil production and as a small producer, we have definitely been feeling the pressure. We sell our oil to Shell Trading and we got an email earlier this week saying "Starting May 1 they will no longer be buying oil from any producers until further notice." They said that all their storage facilities are completely full and they have no more room to store oil or gasoline. Once the Saudis up production in April this is going to be devastating to the price of oil. The RRC is kinda between in a rock and hard place with the decision to limit production. Very tough decision. Personally I don't know if limiting Texas oil production would do a whole lot in the grand scheme of things except hurt domestic producers even more. The Saudis are the second largest producers in the world at 12.5 million barrels per day, Texas produces around 4.7 million per day, so limiting Texas production might only be a drop in the 1000 gallon bucket. Until the planes get back in the air, boats back at sea, people back at work, and Russia and Saudis calm down, I don't see oil returning to pre-pandemic levels anytime soon. Just my thinking though.
I find it quite amusing that people do not want this virus called the Chinese Virus. The massive amount of human rights violations, the authoritarian reign, and killing or censoring of those who disagree with the state is horrendous, yet I don't hear the PC crowd say anything about that. They are more worried about offending the Chinese government, give me a break.
I totally agree with your take on the stimulis package passed by Congress. It's scary to me to see how comfortable our leaders are with massive amounts of debt. We are already $20+ trillion in debt, how many more cards can be stacked? It will be quite fascinating to see the long term effects this virus has on the human psyche and long-lasting impacts on businesses. We will recover, we always have, just don't know how long it'll take.
Posted by: Thomas Dresch | March 27, 2020 at 08:01 PM