almost 4 years ago • 2 mins
OPEC – the influential group of oil-producing countries – made a splash on Thursday when it provisionally agreed to cut oil output again following a coronavirus-fueled drop in demand 🛢
Even before the outbreak, oil output was already at its lowest level since 2009. But if this new agreement’s approved, OPEC will shut off 1 million more barrels a day, as well as extend a previously agreed 2.1 million-barrel reduction to the end of 2020.
The group’s doing its best to prop up the price of oil as its member governments struggle to balance their budgets 📝 But it’s fighting a losing battle: the oil price has fallen about 20% since coronavirus started spreading in January. That might be why analysts are predicting global oil consumption could stay flat in 2020 – for only the fourth time in 40 years.
The recent market sell-off is notable because it’s hurting stocks of both oil companies and airlines. Energy stocks generally suffer when the oil price falls, but airlines – which have lower fuel bills – tend to take off ✈️ Coronavirus, however, is slamming demand for travel as much as it is for oil: just look at America’s Southwest Airlines, which cut its revenue guidance on Thursday, and British carrier Flybe, which collapsed altogether.
America’s shale producers could be in trouble if the oil price keeps falling. The US has become the world’s biggest oil producer thanks to rising output from its hydraulic fracturing of shale oil. But with concerns growing that those producers will struggle to survive unless prices rebound soon, investors have been selling shale producers’ stocks in recent weeks. Then again, if they were to fail, that would restrict the oil supply and could ultimately fast-track a rise in the oil price…
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