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Oil Falls Deeper Into Turmoil Due To An Epic Collapse In Demand

Oil Falls Deeper Into Turmoil Due To An Epic Collapse In Demand

Market Crash – Déjà Vu?

Although we thought that the stock exchange had reached bottom last week, another blow happened this morning, when trading halted for the third time in six days. Namely, S&P 500 plunged by 7% this morning, initiating a circuit breaker.

The same happened to NASDAQ and Dow Jones Industrial Average. Therefore, all indices are red and we are witnessing the most serious situation since 2008, with a bear market and overall market condition which are similar to the  one we experienced when Lehman Brothers went bankrupt. Does this feel like Déjà vu?

Oil Industry – Industry To Avoid

The oil industry is becoming very difficult for making long-term investments and it is not because of the low-carbon demand, or climate activism. Major oil industry players are facing serious situations due to diminishing demand caused by the coronavirus and oil price war between OPEC+ superpowers – Russia and Saudi Arabia. Exxon Mobil (NYSE: XOM) lost 19% of its value in the previous 5 days, Royal Dutch Shell (NYSE: RDS-B) lost 1/3 of its value, while Chevron (NYSE: CVX) lost 13% of its value.

British Petroleum (NYSE: BP), Exxon Mobil, Royal Dutch Shell gave an order for most of the staff to work from home since yesterday, implying a further reduction in production. Chevron could be declared as the winner of this oil mayhem as it received the Zacks Rank #3 (Hold), unlike other oil giants. However, an interesting company on the horizon could be New Fortress Energy (NASDAQ: NFE), with Zacks Rank #2 (Buy), since the company is transforming from a developing company to an operating company. This makes New Fortress stocks interesting to buy, especially having at mind the low prices of stocks.

Could Reasons For The Crisis Be Altered

The main invisible foe of the world, the coronavirus, threatened the oil industry seriously by cutting China's demand. However, the final nail to the oil industry coffin could come from oil companies. Ironic, isn't it? Oil war between oil giants from OPEC+ – Russia and Saudi Arabia threatens an already shaken oil market, and anxious investors. To make things worse, Aramco's CEO Amin H. Nasser said that they are comfortable with the barrel price of $30 and that they will continue pumping high oil output in April. Their production costs are $2.80 per barrel.

Another belligerent, Gazprom, claims that they are also comfortable with low oil prices, having in mind the production costs of $3.5 per barrel. No plans for a decrease in production are in sight. As long as oil prices remain high enough to cover production costs, we can expect some sort of oil war and overall overproduction. Therefore, for now, neither the coronavirus nor pump-at-will commands will magically disappear, which will create significant pressure on oil prices in the months to come and consequently, the entire industry.

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