Oil Price Crash Effects on Markets and Countries – Expert Clark Weeks Concerned

Another one of Clark Weeks’ interests is small oil wells. They have traditionally been great investments. The pandemic is having an impact with oil production as with so many other things.

The COVID-19 crisis has given rise to many ‘firsts’. Adding to this list is the fall in oil prices with the commodity reaching below negative for the first time in human history. However, the pandemic is not solely responsible for this drop. Russia and Saudi Arabia are the world’s leading oil exporters. The ongoing price war triggered by these 2 nations is another major contributing factor towards this sudden drop in global oil prices.

Effects of Oil Price Crash on Countries

Most Middle Eastern economies like UAE, Kuwait, Saudi Arabia, as well as Venezuela, depend almost solely on the revenue generated from exporting oil. Therefore, any massive fluctuation in the oil price has an equivalent impact on these countries. Africa, too, has not been left unaffected by the global oil price crisis. As the continent with one of the youngest populations, countries like Nigeria have been on the fast-track for growth in recent years. However, the plummeting oil prices have put a dent on the nation’s growth.

In many countries around the world oil production is run by the government or by companies with close ties to the government. In the US, this is not the case. There are many large companies involved in production here as well as worldwide. However, the US has many small independent oil producers as well which Clark Weeks, an industry expert, is concerned about.

Effects of Oil Price Crash on Global Markets

Apart from threatening the economic stability of oil-exporting nations, the uncertainties in the oil industry may also render a large chunk of its global workforce jobless. The USA employs nearly 10 million people in the oil and gas sector and Saudi Arabia attributes 50% of its GDP to oil export. Likewise, the oil and gas sector make up 30% of the Russian GDP and employs over a million people.

All of these circumstances have raised a cause for alarm regarding the very stability of the global oil sector. Where in the past, the oil industry has been instrumental in driving economic growth for nations all over the world, today the industry is facing stagnated demand that is fast becoming a major problem.

Clark Weeks Concerned If Oil Prices Continue to Fall

While most Middle Eastern oil-producing nations are left with curtailed spending on government and social programs, some countries like Iran and Iraq are on the brink of social unrest if prices continue to fall. Nigeria derives nearly 9% of its GDP from oil export. It is also the most populous country in the African continent and one that is likely to be most severely affected by the falling oil prices.

Even if the situation begins to improve in the coming few weeks or months, it will be some time before these nations show any signs of recovery. Mostly because the global economy has to recover on the whole for the demand for oil to go back to what we have seen in the recent few years.

Countries are being impacted differently based on their cost of production. Some countries can still produce and make a profit despite the recent drop in prices. Many others lose money because the cost of production is over the current price of oil.

Interim Solution

Vehicle Fuel
Demand for oil has come to almost a standstill across the world

India, China, the USA, as well as most European nations are the largest consumers of oil. As demand has almost come to a standstill here, they are refusing to buy more oil. According to experts, the situation will not change even in the second half of this year. However, the operational cost of producing oil is still very much real and this has put an additional burden on oil-producing nations of the world. In such a situation a midstream logistics and gathering oil company like the Texas-based Enterprise Product Partners have stepped in to take over the excess shipment. But this is a short-term respite and not a permanent solution. Clark Weeks and others are concerned that small oil wells will be disproportionately affected by the drop in demand.…

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Small Oil Producers Struggling During Pandemic

The words “pandemic” and “struggling” seem to be tangled with each other recently. The oil business, in general, is yet another casualty in this global crisis. While the effect of the pandemic goes across the board, from small to big oil companies, the big producers have some resources to back them up. The small oil producers will be taking the brunt of the hit. Some will have no choice but to shut their doors and lay employees off.

So, Why Are They Struggling?

Because of the pandemic-driven lockdowns, several businesses had no option but to close. In large cities and small towns alike, much of the electricity use comes from big companies. Yes, there will be more electricity at home, as family members huddle in to avoid health risks, but they do not use as much energy as companies in their big buildings. Travel has also significantly decreased. Big oil users, such as planes, have not been getting a lot of mileage due to the strict lockdown rules of each country. Nobody is interested in going anywhere else, but home. Even those who are not in their own homes cannot leave where they are for fear of getting infected by the coronavirus during travel or being trapped in quarantine centers for weeks.

What Are the Other Competitors?

Some energy users have also begun their transition towards cheaper and sustainable energy. Several households in the world, including a couple of Southern states in the United States, have shifted towards wind and turbine energy. This shift has been brought about by economic struggles. Businesses and households alike seek to save money as much as possible, as they face an uncertain future. The more stores close, the more people lose their jobs. Job losses do not inspire consumption. When consumption cannot be avoided, oil producers are losing to cheaper, renewable resources.

Why Are Oil Prices Dropping?

As oil usage drops, the cost also drops. A staggering crash from $70 a barrel to $20 from January 2020 to April does make the word “drop” an understatement. There is not a lot of demand. This situation may even continue for a few more years after we survive the pandemic. The lack of usage is not due to scarcity, but because several industries have had to halt operations. Imagine if the lockdown continues down this road. Prices may even get lower, and producers may not be interested in selling at those rates. Even though at low prices, people are happy to buy, they can only buy so much. Despite the low prices, demand is down and because demand is down, the price is low. So, small oil producers cannot even get a break from the pricing. The recent pandemic is undoubtedly highlighting the “survival of the fittest” aspect of living. The world may not have been completely stripped to its essentials, but the possibility has been laid bare. For small oil producers, there may be no option but to close. Even big oil companies will struggle, and oil suppliers are slowing down production because of recent events. Soon, some small oil producers may have no choice but to become part of mergers or to become wholly bought by more prominent companies. At the moment, the future still seems so bleak for them.…

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