Oil prices are in freefall after a seemingly endless string of market shakeups; as prices continue a downward spiral, the question remains, where will the downward spiral bottom out?
While the novel coronavirus, or COVID-19, has been a significant catalyst for the rapid decline in oil prices as of late, the decline began in earnest amid the U.S.-China trade war. The coronavirus and the resulting decrease in global travel dragged prices even lower, which caused a great deal of alarm with OPEC+. Attempts to stymie the drop in prices by OPEC+ have failed, with Russia and Saudi Arabia locked in a price war after a failure to agree to production cuts.
The compounding of so many negative factors has had a profound effect on oil prices, driving the price per barrel to astounding new lows. Just recently, with President Donald Trump's announcement of travel restrictions with Europe, the price of U.S. Crude dropped to $31 per barrel. The recent ignition of a market war between Russia and OPEC will only cause prices to drop even further. The contenders in the coming oil war are set to flood the market with oil to compete with one another and try to eke out larger market shares; given the existing glut in worldwide oil supply, adding even more oil will drive prices to unprecedented lows that experts are having trouble predicting.
This leaves the question; where will prices bottom out? This is a hard question to answer; experts don't seem to have a consensus just yet. Ali Khedry, CEO of Dragoman Ventures, estimated that prices might go as low as $20 per barrel. "Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc - may prove existential 1-2 punch when paired with COVID-19." Says Khedry. Some experts had more optimistic outlooks; Goldman Sachs
Bottoming out estimates are likely to change, however, as the situation changes. The unpredictable spread of the coronavirus continues to worsen, and as new cases are confirmed internationally, international travel demand will likely continue to crater. Prices may drop more drastically as travel restrictions and other measures are enacted, as seen by the market reaction to Trump's travel restrictions that were recently put into effect.
- https://www.cnn.com/2020/03/12/investing/oil-prices-trump-europe-travel-ban-coronavirus/index.html
- https://markets.businessinsider.com/commodities/news/oil-prices-and-airlines-slump-over-trumps-proposed-travel-ban-2020-3-1028989207
- https://time.com/5800452/oil-price-questions-coronavirus/
- https://www.marketwatch.com/story/why-april-will-be-a-very-cruel-month-for-oil-prices-2020-03-11
- https://www.cnbc.com/2020/03/08/opec-deal-collapse-sparks-price-war-20-oil-in-2020-is-coming.html
- https://www.pws.io//whats-happening-to-the-oil-industry