US oil price plummets to unprecedented levels: Is this the "new normal"?
Waning OPEC influence to change industry dynamics
The chronic oversupply of oil and subsequent price plummet will have a "lasting impact" on the commodity and spells "trouble ahead" for investors in the asset class, according to some investment professionals.
Others, however, believe yesterday's price action was a "peculiarity of futures trading" and will not be "the new normal going forward", therefore opening up a "vast" opportunity set for investors.
Yesterday evening (20 April), US West Texas Intermediate (WTI) oil fell to minus $37.68 as producers began paying buyers for barrels due to storage concerns, as the pandemic-induced lockdown continues to weigh on demand for the commodity.
Market Movers Blog: FTSE down 1.7% in first 30 minutes of trading following oil price crash
It staged a small recovery this morning to $1.40 per barrel before falling into negative territory again at time of writing (10.23am) to minus $1.86. Meanwhile, the global Brent Crude price index has dipped but remains in positive territory at $20.79 per barrel.
Joe Healey, investment research analyst at The Share Centre, warned events sparked by the lockdown - such as airlines staying grounded and general business activity remaining stagnant - will have a "lasting impact" on the commodity, which is commonly owned as a "safe inflation-protected investment in portfolios".
He added the fact last week's OPEC deal has had little impact hints at a "waning influence of OPEC in the international oil market with the US being the now single largest producer alongside the growing Russian influence on the market, something that may change the dynamics of the industry moving forward".
He said: "The path ahead remains gloomy for oil as signs of lockdowns easing are nowhere to be seen. Despite new case growth slowing, the caution over a second outbreak could prolong the troubles for some time still, something that oil definitely does not need right now."
Jai Malhi, global market strategist at JP Morgan Asset Management, agreed the energy sector will face "significant challenges in the coming months".
"This level of oil price is not sustainable for any global oil producer. Even for Saudi Arabia, which has a low cost of production, this is not viable.
"Such low prices will not last and the pressure on storage will likely force OPEC into further production cuts in order to boost prices," he said.
"Corporate earnings will likely have further to fall and preserving liquidity will remain a main task until the supply and demand imbalance can be corrected."
Artur Baluszynski, head of research at Henderson Rowe, also said there is "trouble ahead" for the oil & gas sector, despite yesterday's negative WTI futures price likely being a "one-off glitch".
He added: "The Covid-19 crisis is destroying the global demand for energy and without a timeline on the end of the lockdown in the developed world, the market is suffering from chronic oversupply."
