On April 20 2020 the imaginable happened!
Oil prices went negative which means it dropped below $0!
This has NEVER happened before and this is serious. Oil companies are now paying for people to take oil out of their hands. So does that mean you can go to the nearest gas station to fill your car and you’ll get paid?
The problem right now is that we are not using nearly as much oil as we used to. Since most of us are in quarantine, we’re not driving around as much, not traveling or going out and so the demand for oil has dropped significantly.
It all comes to supply and demand and right now there is a lot more supply than demand.
The way to balance things out would be to lower the extraction of oil. This way there wouldn’t be such a ridiculous difference between supply and demand. So that’s what oil companies are doing, right?
Companies are actually bumping production UP to put some of the competition out of business.
Saudi Arabia can produce oil for under $9 a barrel, Iraq for around $10.57, Russia for $19.21, U.S for $23.35, Canada for $26.64 and the UK for $44.33.
This means when oil prices drop, countries that have higher costs for producing will be the ones who suffer the most. As for the companies of Saudi Arabia, Iran, Iraq or Russia this will only hurt short term but it will pay off in the future because there will be less competition.
Right now oil companies at “war” with the highest profitable ones bumping up the production and dropping the prices to make other companies fail. The others are lowering the production and trying to survive the next few months.
The term negative oil prices it’s referring to “Oil futures”. This is just an agreement that the companies make that at a determined time they will pay a certain amount of money for a barrel of oil. What no one was expecting was that the demand for oil would drop this much.
And now companies are running out of space to store the oil making it actually cheaper to pay someone to just take the oil instead of finding a new place to store it. But oil storage is actually very expensive, something like $335,000 a day!
So how does this affect us?
In the short term it’s very likely that you’ll be able to fill your gas tank for a lower price but prices will come back up sooner or later.
If you want to take advantage of this and invest in the stock market now it could be the right time to make HIGH PROFITS but also at a GREATER RISK.
Oil companies stocks are very cheap right now because there is a risk they might go out of business, but if they don’t this could mean a very profitable deal.
Remember, never invest money that you cannot afford to loose.
So what are your thoughts on all this? Let me know in the comments bellow.
See you next time.