By Shan Saeed, Chief Economist of IQI Global
US oil prices have crashed to unprecedented lows, resulting to many plans ending in negative territory for the first time amid a devastating supply glut that has forced traders to pay others to take the crude off their hands.
Thus resulting in many bankruptcies in the United States, starting with many shale gas companies reeling under these dark times.
Ever since September of 2019, the demand for oil began collapsing – before the arrival of the pandemic knows as COVID-19.
With a low demand, there is no need to sell it at a high price – simple logic.
But what is the impact of the dwindling US oil prices will have on the world market?
For many shale gas companies in the US, they will greatly suffer from bankruptcies amounting to over USD 500 Billion to USD 1 Trillion, not excluding the banks will suffer too from this outlook, as they need to remove the loans given to shale gas companies from their records.
This domino effect will not only give rise to bankruptcies, but it will also lead to layoffs, the dwindling bond markets and energy market – thus creating increased pressure on the financial markets.
But what does it mean when oil prices hit negative?
For those who are interested to sell a barrel would have to pay a buyer USD 30 – with future contacts that require buyers to take possession of oil in May 2020 expiring soon. The result, no one wants the oil due to storage and its fruitlessness.