Oil Stocks: What Is The Future Of Black Gold?

This year has seen one of the most volatile stock markets in quite some time, and we’re barely halfway through. The crisis caused by COVID-19 has shaken up nearly every industry you can think of, even markets traditionally considered safe investments. Crude oil is considered to be one of the most commonly traded commodities and has been a staple of both day traders and long term investors because day-to-day prices are fluid. Still, demand has primarily remained consistent, up until the past few decades. Oil and gas were some of the hardest-hit markets by the COVID-19 crisis, mostly because people just aren’t using it! You don’t need to go fill your gas tank much if you’re stuck at home under quarantine. The question now is how much the price of crude oil will recover, if at all. Will black gold continue to shine, or is this gold rush finally coming to an end?

The timing of the outbreak of COVID-19 was especially damaging to the oil and gas market. Even before we had the full scope of the pandemic was realized, the oil market was in rough shape. Early in 2020, two of the largest oil producers, Saudi Arabia and Russia, were engaged in a weeks-long price war that plummeted prices from $70 a barrel to around $20 a barrel, in the face of a looming pandemic.

OPEC, the organization of oil-producing countries responsible for maintaining reasonable production rates, attempted to cut a deal to lower production across the board to save pricing. Even this deal was shaky, as Mexico threatened to sink the agreement unless it was allowed to reduce its production cut. The agreement did bump prices up a few points, but it soon fell back down and continued falling.

Coronavirus has stopped us from driving and flying, and even though oil production has been slashed, it continues to go on. Stores of oil built up so drastically that the price of individual American oil futures fell below $0, something never before seen. A negative price essentially means that oil is continuing to be produced, but no one is willing to buy it at any price. There was no place for this oil to go, so producers were willing to pay buyers to take the oil off their hands.

In my view, the future for oil was murky, even before this year’s crisis. It seems that renewable energy is becoming more and more reliable and easier to produce, so it’s only a matter of time until energy-efficient products overtake oil and gas. Personal ethical opinions and government restrictions on emissions appeared to be slowing demand, and oil and gas companies like British Petroleum seem to sense the changes coming, as even they are beginning to invest more in their renewables sectors. Only time will tell, but it might be that this recent turmoil has just been an acceleration of an already growing trend.

If you’re interested in hearing more of my thoughts on current events, in the market and otherwise, check out the PlantXPodcast.

‍