The Saudis are cutting oil prices and plan to dramatically ramp production. Oil closed at $42/bbl on Friday and is indicating around $32/bbl now. WOW. This is economic warfare against Russia, but the effects will be widespread, and likely not good. Will be nice at the pumps - unless you live in CA or NY, sub $2.00/gal gas is coming - but the ensuing instability in rogue petro-states could have some nasty unintended consequences.
I'll let the usual board experts provide additional color.
XLE was yielding almost 9% on Friday, and will surely be over 10% tomorrow. Unreal.
Be safe out there.
case the cause for the weakness is twofold. First prices were dropping due to lower global consumption from the virus. China now the biggest importer has cut demand sharply.
OPEC and Russia tried to reach an agreement to cut production but failed. So Saudi Arabia opened the valves to full production.
Lower demand and higher production is causing prices to collapse. But Saudi wants everyone to fall in line or else.
The results will be sub 2 cents per gallon for awhile and close some high cost production like shale. This will involuntarily take production off the market.
Consumers will respond by buying even more SUV’s and trucks.
Eventually, higher demand will come back and there will be a whipsaw effect and prices will spike.
The equivalent of a giant global tax cut. Very positive in the aggregate with, of course, certain sectors that will suffer because of it.
Very damaging to Russia’s fiscal situation, along with other petroleum states like Venezuela, Nigeria, and even Iran. Damaging to the Saudi fiscal situation as well.
Will undoubtedly send several frakkers into bankruptcy in the USA.
But overall, this is a giant shot of adrenaline for the global economy.
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Of course, people have other worries at the moment. So, the fact that energy is much cheaper may not make a difference right away. If you are scared to death of coronavirus, it doesn’t matter that a flight to Paris is now only $200. But, over time, it is a big positive while it lasts.
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Lower oil prices are certainly stimulative, just like lower rates. But nobody cares about that right now.
Energy stocks are taking a beating across the board. That’s a big chunk of lots of IRAs.
This morning’s crash is largely Saudi-driven. The virus fears accelerate it.
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I’m just a caveman who cannot comprehend the geo-political implications. I wonder how a cash-strapped Russia or Iran might react. Or how about the thousands of smaller US drillers that will go bankrupt in a sustained price war. Or, will the decreased cost to consumers and manufacturers offset the risks?
I know nothing. Time for a stogie and cocktail to ponder such questions.