The recent plunge of New York oil markets made news around the world but it wasn’t exactly unexpected. The price of Western Canadian Select had been hovering at historic-low levels for several weeks, leading one observer to comment, “A barrel of oil is becoming cheaper than a pint of beer.”
Last week, Saudi Arabia and Russia struck a historic deal to reduce global oil production by about 10%. But this was not enough to stop prices from plummeting.
The effects of the negative prices will be far-reaching. Oil-producing nations will be hardest hit, with market players selling the Brazilian real, Norwegian krone, and Mexican peso in favor of the US dollar. Traders are now watching to see if these countries will slash production even further.
Another concern is the impact on the US energy sector. Colorado-based Whiting Petroleum filed for bankruptcy earlier this month, and is expected to be the first of many shale producers to go under amid the pandemic. Analysts say more firms will find themselves in trouble as oil prices continue to tumble and there are fewer infrastructure projects to supply jobs.
Despite these conditions, President Donald Trump has been putting on a brave face.
“We will never let the great U.S. Oil & Gas Industry down,” Trump said in a tweet on Tuesday. “I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”
But experts say there is no easy way out. Low oil prices usually mean lower prices at the pump. But there will be little demand for gas until the pandemic is contained. Amid these extraordinary circumstances, it is crucial that countries work together to come up with unprecedented solutions.