Thanks to COVID-19, flying is down, driving is down, and the price of fuel is way, way down. On April 20, U.S. crude oil dropped to its lowest level in more than 30 years, due to a slump in demand. That day, West Texas Intermediate crude for May delivery fell below zero for the first time in history.1
As you may have seen in recent weeks, OPEC and its oil-producing allies finalized an agreement to cut production, but many believe that the move still won’t be enough to counter the fall-off in demand.
Even the White House might be considering its choices, which may include tariffs on oil imports or paying U.S. companies not to produce oil.
The Good, the Bad and the Ugly
Lower oil prices mean cheaper gasoline for consumers, and relief for companies with high energy use (e.g., airlines, chemical firms). However, cheaper oil may pose a risk to the American energy industry.
When the price of one market drops so far, so quickly, the move often is felt by other markets. Over time, continued low oil prices could lead to lower capital spending, labor force reductions, and credit market trouble as some companies struggle to pay their bills.
We’re keeping a close eye on the oil market to see whether this historic move may ripple through other areas. Meanwhile, please reach out if you have any questions.
1. FoxBusiness.com, April 20, 2020