Will the oil price crash in 2020
What do the stock market and oil price crashes mean for consumers?
The turmoil on the financial markets increased dramatically on Monday due to the spread of the new type of corona virus. The oil prices were hit particularly hard, and were also negatively impacted by a dispute between important oil states over future production policies.
A low oil price - the lubricant for the global economy - is actually beneficial for many companies and consumers. Investors are fleeing to safe havens, consumers can hope for falling prices for heating oil and fuel.
What is the reason for the oil price crash?
The background to this is a dispute between Saudi Arabia and Russia over the future production volume, which threatens to escalate further. As reported by the Bloomberg news agency, citing insiders who are not named, Saudi Arabia could even increase production in the coming months. The oil market is threatened with a large oversupply in the second quarter, especially since global demand is likely to remain severely impaired for some time due to the virus crisis.
Why was Moscow against a subsidy cut?
According to experts, the Russian government is likely to target competition in the United States with the measure. The fall in prices is putting a strain on American production through the expensive fracking method, said Julian Lee, raw materials expert at the Bloomberg news agency. A mixture of water, sand and chemicals is pressed into rock layers under high pressure to extract oil. Dekabank analysts referred to concerns about the highly indebted US fracking companies. This contributed to the fact that the markets panicked at the beginning of the week.
Why is it hitting oil prices so hard?
Crude oil lost about a third of its value earlier in the week. There has not been such a strong percentage setback for almost 30 years. In addition to the virus crisis, concerns about a new price war among leading oil states are the main reason for the rapid crash. Last Friday, Russia broke negotiations with the OPEC countries on a new cut in subsidies to stabilize prices. Even an extension of the existing funding restriction was off the table.
Can motorists now hope for cheaper gasoline?
At filling stations, gasoline and diesel could well go down - even if the largest part of the fuel price is accounted for by energy and VAT. The Mineral Oil Industry Association did not want to make a forecast, but referred to earlier developments. "Because of the high market transparency and the strong competition for every driver, the prices for gasoline and diesel have fallen one to one with the falling purchase prices in the product markets since the beginning of the year," it said. The further development is now dependent on, among other things, whether the oil cartel OPEC "can agree on a production brake with other oil-producing countries in the near future". In the case of heating oil, the raw material price makes up a higher proportion of the total costs, which is why the end consumer could receive higher percentage price reductions.
What triggered the recent panic in financial markets?
For weeks, the spread of the new type of corona virus and concerns about the consequences for the further development of the global economy have repeatedly caused price losses on the stock exchanges. Recently, however, the nervous mood has noticeably increased. The virus crisis has worsened in important industrial countries such as South Korea and Italy. Above all, the cordoning off of entire regions in the economically strong north of Italy with the metropolis of Milan frightened investors. The rapid crash on the financial markets came as a complete surprise to many investors and quite a few, like the analyst Ulrich Leuchtmann from Commerzbank, ask themselves: "What if what we are currently seeing is the beginning of the great earthquake?"
Where are investors fleeing to?
Refuge is in all facilities that are considered reasonably safe. Government bonds in particular are in great demand. It is accepted that safe government bonds will no longer generate any returns. The Bunds, which are valued as particularly safe, are even traded with negative yields. That means: The demand for German government bonds is so strong that a kind of fee is even accepted when investors borrow money from the Federal Republic of Germany. Government bonds from Switzerland and Japan are in similar demand, with the currencies of the two countries being valued as safe investment havens.
Who else is one of the profiteers?
The price of gold. It has had a significant upward surge since the end of February and rose to the mark of 1700 US dollars per troy ounce (about 31.1 grams). However, there have been several sudden setbacks in the gold price in the past few trading days, which were explained on the market with forced sales. Many investors had to sell gold in order to get fresh money to compensate for losses elsewhere.
Is a new recession looming now in Germany?
The coronavirus crisis came at an inopportune time for the German economy. No sooner did the recently troubled German industry show signs of recovery than economic development is slowed down again. Economists now no longer want to rule out a slight recession in the first half of the year. However, the recent rapid drop in oil prices is also acting as a kind of stimulus package for the German economy. Falling energy costs relieve companies. This can somewhat mitigate the consequences of the virus crisis for the economy.
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