Oil prices have fallen to below zero, and while this doesn’t mean gas is free, this does raise many concerns of the state of our economy.
Due to COVID-19 and the stay-at-home order, less people have been needing to drive and fill their cars with gas. The lack of oil consumption caused for gas and oil prices to decrease dramatically.
Oil is considered to be the world’s most important commodity, yet is losing value day by day due to the lack of consumption. Since less people are driving and there is less demand for oil, there is an oversupply of oil in the market. The worst part about the lack of oil demand is that this doesn’t just effect the United States, but effects the entire global market.
With demand for oil on the decline, oil trading is beginning to decrease. May contracts for oil delivery are starting to expire and many traders are pushing delivery dates for June, however many suppliers lack the capacity to even store oil. As storage units are reaching capacity, some tanks may even be at full capacity within three weeks.
Big oil producers are thinking to cut production due to the lack of storage and declining oil prices. The cost of production is beginning to outweigh the gains and if the economy opens back up, there may be a concern of an insufficient supply with oil consumers back on the road. North America is expected to take the hardest hit in oil revenue and profitability.
On top of oil prices declining, the S&P 500 and Dow Jones have faced a fair share of decline as well. Traders are liquidating their investments causing companies to lose value in their stock. However, not all companies are suffering during this time, as the stay-at-home order as actually been benefiting them. Companies such as Netflix and Amazon have been increasing their market capitalization as an increase of consumers have been utilizing their product. These companies are acquiring a higher gain and have been keeping the stock market somewhat afloat while the many other companies are stuck in losses.
The remaining concern is U-shaped or V-shaped recovery. The recent recovery in stocks is due to investors’ expectations that the economy will bounce back shortly after the pandemic is no longer a concern. Basically, there is hope that recovery will bounce off a sharp decline and kick off with a sharp bounce back, resembling a “V” shape. However, many should expect that after a somewhat gradual decline, there will be a gradual kick start back up, having the economy resemble a “U” shape.
All in all, the economy will not stabilize until there is no longer a growing concern of