The decline in oil prices continues | Analysis
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When we thought that perhaps by now the price of oil could have recovered, we saw a decline in its price because the cases of covid-19 continue to increase in the United States and Europe.
To get an idea of this drop in oil prices, only yesterday closed with a drop of 3%, it is clear to understand this drop in oil prices once the United States and Europe have again imposed restrictive measures that reduce traffic and mobility of people.
This new restriction brings as a consequence an affectation to the economy and a decrease in the demand of the volume of oil that is commercialized in these two big markets such as the European and the United States of America.
Analyzing a little bit the background of these consequences of the new decrease in oil prices is for example the fact that an oil company like Exxon has to make a 15% cut in its current workforce in order to alleviate that deficit in its source of income such as oil sales.
Despite the fact that there are technologies in the United States to increase oil production and compete in falling markets, today it is difficult, for example, to economically maintain projects that include the mechanism of improved recovery of crude oil by hydraulic fracturing (fracking), without taking into account that in the United States and other oil producing countries in the world they have unconventional deposits that for their exploitation and viability require a stable price above current prices.
The horizon does not seem encouraging for oil prices to stabilize and return to a price more in line with the complexity of its extraction and production, since the Organization of Petroleum Exporting Countries (OPEC) will meet to evaluate the possibility of increasing the production quota to 2 million barrels per day, which would be a decision that would not help to increase prices if measures of restriction and immobility continue to be taken as a result of the covid-19 pandemic.
Final conclusion
The oil panorama at a global level is between a rock and a hard place, that is to say, in order for prices to rise, it is necessary that there be a normalization of mobilization, however this is impossible to occur if we continue to see a rise in the cases of covid-19 at a global level.
It only remains to wait and continue analyzing this market that has managed to lose stability and that continues to depend on the dynamism that humans have in their most common activities of tourism, travel and a dynamism of a normality to which we were accustomed.
With oil prices falling in developed markets that would mean oil-rich nations like Venezuela will likely be unable to sustain their expenses since they're not generating enough revenue. Nations like Russia, and Venezuela are affected by the major dip in demand these past few months.
Certainly, oil-producing countries are seeing their oil revenue altered, but this is something that OPEC and other markets will have to learn to survive with these low prices for some time to come. Greetings and thank you for commenting.
Good article, it is possible that a change of era is affecting that resource as in his time was the coal things change and this is a new world.
I personally think that oil prices have become very vulnerable because they depend on how much we need hydrocarbons for our most essential activities, so I think that when renewable energy replaces a good part of the energy from hydrocarbons then oil prices will go down even further. Greetings @carlos84 and thank you for sharing this information.