Facebook
Twitter
LinkedIn
Instagram
Youtube

Why are the oil prices falling?

Team Veye | 20 Apr 2020

Why are the oil prices falling?

As the world braces for the deepest recession since the great depression, market watchers are evaluating another negative impact. Falling oil prices.

Eruption of coronavirus led some uncertainty in stock markets, due to the much lessened commercial activity, idled factories and numerous cancelled flights.

The pandemic led to a very steep fall in worldwide energy demand leading to a plunge in oil prices. There have been multi faceted concerns on oil demand amid coronavirus shutdowns. 

The Oil prices have suffered the biggest fall since 1991 when American forces had launched airstrikes on Iraqi troops following their invasion of Kuwait.

What are the reasons for this price change? Has any other source of energy suddenly become more competitive? Whether the demand for oil suddenly decreased or supply increased abnormally. Or is it another instance of monopoly power of oil producers falling.

But there have been no major discoveries of oil or breakthrough in an alternative source of energy recently. Though, certainly, there has been a loss of monopoly power. There have been reports of tension between Saudi Arabia, the most important OPEC producer and Russia, the most important non-OPEC producer. Disagreements have surfaced on demand to cut the output to slow or stop the price erosion.

This time, the oil prices also fell due to the slowing of the world economy thus resulting in reduced demand for oil. Here, it would be worthwhile to note that demand for oil is inelastic. Mere one percent increase in output can lead to a ten percent drop in price. The enormity of this is apparent by the fact that just a three percent increase in output is needed for a massive thirty percent price drop.

Drop in oil prices further reduce economic growth. The oil prices directly affect the prices of other commodities whether petroleum related or not. 

Disclaimer

Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing reports. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.