Oil Market Wins, Doomsday Calls Each Mislead. Here's The True Situation
Ellen Wald | Jun 11, 2020 05:20
As oil market watchers try to identify outcomes of the coronavirus pandemic, beware of misleading information. While oil demand is inevitably up in the U.S. as state economies reopen, overall it's still depressed. Although OPEC+ made a deal extending the current production quotas last week, this must be viewed as a very short-term success.
On the other hand, doomsayers who predict the end of industries or entire countries because of the recent drop in oil prices should also be considered misguided.
We're still observing how the oil market reacts in the later stages of the pandemic-induced economic collapse, but quick takes are not always correct. Here are the facts:
1. U.S. Oil Demand /h2
Demand for fuel in the United States remains muted, and this will weigh on crude oil prices as refineries continue to pump out more product and add to the stocks of gasoline, diesel and other fuels.
While consumption numbers for gasoline and diesel (distillate) have started to climb week-by-week as states re-open economies, that doesn’t mean the overall outlook is improving. The might “result in the collapse of the shale oil industry in the U.S. unless oil prices return to their prior levels.”
Those following U.S. oil production carefully understand that this statement is a worthless risk assessment delivered by analysts who do not understand the oil industry in the United States. It's true that there are many oil companies in the shale region that are performing poorly and may collapse. However, the industry is comprised of a diverse group of companies, each of which is fighting to survive in the current low-price period.
Some companies are going bankrupt, but others are even considering bringing shut-in wells back online. The industry is redefining itself during this period of economic distress, but it is not collapsing.
Low oil prices do cause economic tension that can lead to political tensions. The report mentions Iraq, Saudi Arabia and Iran as countries in the Middle East susceptible to political instability as a result of low oil prices. However, low oil prices themselves do not cause political instability—how the government responds to this challenge potentially could.
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