From the news, you would probably have already heard of the US oil prices crashing below US$0 to US$-37.63 per barrel. Based on what I know, the price of a barrel of crude oil varies based on factors such as supply, demand and quality. Why did the oil price crash? The answer is simple. The current supply exceeds the demand.
The Organization of the Petroleum Exporting Countries (“OPEC”) comprises of 13 member countries which are Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela.
OPEC’s objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.
Last month in March, an oil price war sparked between Russia and Saudi Arabia as Russia refused to cut oil production. This month early April, The OPEC and Russia agreed to cut oil production by 10 million barrels a day but this will only happen in May and June. This means supply continue to increase for April.
The next question you might want to ask is why do we need to cut oil production? This is because in anticipation of the COVID-19 pandemic or the lock down that had already happen, demand for oil fell drastically across the globe. You cannot drive a car when you cannot even travel out of your home. Travel bans are imposed, airports are closed and planes are grounded.
What are the products made from a barrel of crude oil? Some examples of products made from crude oil are gasoline (for cars), diesel (for trucks), jet fuel (for planes) and Liquefied Petroleum Gas (“LPG”).
Last but not least, I will like to recommend this book titled “Fisher Investments On Energy” by Ken Fisher if you will like to understand more on investment into energy stocks such as oil.