Regular stocks and commodity market is often affected by demand and supply, when a higher supply and a lower demand leads to a drop in price while a higher demand and a lower supply leads to a rise in price but this isn’t the same for oil. Oil being the world black gold and the most sought out commodity has its price fluctuate on a different level, it is affected by climate, demand and supply, storage, geopolitics and other external factors.
The price of oil was doing relatively well until 2014 when it dipped but started improving and at the end of 2019, the price of oil at $61.14 per barrel and at the beginning of the year 2020, the price of oil started at $61.17 per barrel but as at the time of writing, the price of Brent crude is at $42.70, the price of WTI crude is $37.74 and the OPEC basket is at $37.59. What could have caused this great fall in oil price?
The reduction in oil price in 2020 is as a result of geopolitics and the pandemic. At a point in 2020, the price for a barrel of WTI crude oil went to negative to about -$37.63 which meant that producer were paying buyers to come take oil provided they could keep and preserve it. Before this time, the price of oil started falling due to the OPEC+ misunderstanding between Russia and Saudi Arabia which led to an economic war due to Russia’s refusal to reduce its production of oil in other to keep the price of oil stable. Saudi Arabia decide to lower price and produce more to keep its profit and to retaliate. Although the OPEC+ has come to an agreement but the price of crude oil already went down and it was accompanied by a pandemic which shut down the world’s economy.
Countries like China and India which use up about 30% of the total oil were the first to shut down their economy and with this, the lack of demand for oil and the continuous supply of oil as oil rigs couldn’t be stopped easily led to the fall of the oil price. Also, let us not forget that people are now going into renewable energy to power homes and for offices which means the demand for oil will keep reducing.
My Question
- What do you think will happen to oil in the next 10 years?
- Do you think the government to start looking into other commodities to generate income?
- Do you drive an electric car or a car using fossil fuel, if you are driving a fossil fuel car, do you intend to buy an electric car in 2 years from now?
- Do you use renewable energy?
- Will Crude become Obsolete in 10 years time?
References
- https://www.cbc.ca/news/canada/calgary/opinion-oil-price-storage-capacity-brian-jean-1.5539878
- https://www.macrotrends.net/1369/crude-oil-price-history-chart
- https://en.m.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war
- https://www.google.com/amp/s/www.cnbc.com/amp/2020/04/25/scary-visceral-unprecedented-traders-describe-oils-wild-week-and-fall-to-negative-prices.html