Lots and lots of volatility in the markets amid much uncertainty. Take into consideration debt levels, monetary and fiscal measures, COVID19 and that’s enough to cause some serious concerns. Now add on top of that a price war for oil and you really start to have some problems. Whether this is a true spat between Russia and Saudi Arabia or some sort of backroom deal between the two nations to attack US oil and gas producers, we will likely never know. However, regardless as to which is the case, the same outcome holds true – oil prices plunged, they’re likely to remain lower for longer, and this has serious negative consequences for US producers.
The world was already awash in oil and gas and now with Saudi Arabia pledging to produce even more, well prices will just go that much lower. Why? Well for one, global demand has been weak, remains weak, and will continue to be so for the foreseeable future. This was the case even before COVID19. So add all of these things together and you have this perfect storm of weakening global demand and a sizeable surge in supply creating this plunge in prices. With the amount of debt that exists on the balance sheets of many US oil and gas producers, especially the marginal, small, and mid-sized producers, we should expect a decent amount of bankruptcies. In the very least, we will witness a reduction in capex and hours worked, which will likely then lead to sizeable layoffs. And a lot of this stems from poor fiscal and monetary policies, but we digress.
Another key point to note is in relation to global protests and the countries where many of them have taken root. It just so happens to coincide with a lot of oil and gas producing states! So add to the list less revenue for nations’ coffers, which means less money for social programs, which means more outrage from people who are already outraged – get the picture? This war for oil is going to get much worse before it gets better. And this will be true on several fronts – economic, financial markets, commodity markets, government budgets, and social unrest. Don’t say we didn’t warn you. Stay diversified, stay vigilant, and stay with The Kapital News. #Oil #Economy #Recession #Russia #SaudiArabia #USA #Gold #Silver #Politics #COVID19