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There’s trouble in paradise… if paradise was the OPEC+ meeting in Vienna on Friday. Russia informed its fellow oil-producing nations that it would not be reducing its oil output to help sustain oil prices around the globe.
Crude oil prices have been plummetting as demand has fallen as travel grinds to a halt. Thanks, coronavirus. China is one of the world’s largest consumers of crude oil, and since February, demand for black gold has fallen by more than 20% in the country.
Cutting off your nose to spite the USA
Russia’s got its reasons for refusing to cut production. Those meddling Russians always have an agenda, don’t they? While cutting production would help stabilize world oil prices, the Russians know that US manufacturers have been cranking out oil faster than you can say “I’m an oilman.”
As a result, Russia believes that buoying oil prices via production cuts is doing US shale oil producers a solid (they aren’t wrong), and believe it or not, Russia’s not too happy with the US at the moment. The US recently used sanctions to prevent the completion of Russia’s Siberia to Germany gas line known as Nord Stream 2, while also punishing the Venezuelan arm of Russia’s Rosneft.
Cause and effect
After OPEC+ talks broke down, all hell broke loose in the crude oil world. Brent crude prices, the global benchmark, fell 9% on Friday to $45.27 per barrel… the lowest price since 2008. And if you recall, that wasn’t a great year for the global economy.
What’s worse, as soon as trading opened on Sunday, Brent crude prices dropped another 30%. Saudi Aramco share prices fell 9% on Sunday, dropping below the IPO price for the first time since going public.
Analysts don’t think this is the end, but rather the beginning of a global crude price crash. Goldman Sachs announced that it could see prices falling as low as $20 per barrel. It set forecasts for Qs 2 and 3 to $30 per barrel.
The bottom line…
If your nation’s economic wellbeing is tied directly to the production of oil, all of the above is really bad news. Looking at you, Mohammed bin Salman. And big oil companies aren’t safe either. Exxon Mobil and Shell also saw share prices drop at least 4% as the price war bubbled up.
Look on the bright side though, non-energy industry folks. Crude oil makes up most of the gasoline you put in your car, so there’s a good chance that falling prices mean that filling up might get a few cents cheaper per gallon.
Water Cooler Talking Point(s)
💧 “Between plummeting mortgage rates and dropping oil prices, what’s not to like about coronavirus? (AJ, The Water Coolest HQ)
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