Pennsylvania Trust

Low Oil Prices Create Further Uncertainty

Low Oil Prices Create Further Uncertainty

The extreme pressure on the WTI contract for May highlights ongoing concerns about the supply and demand dynamics plaguing the oil market.

  • While the front end futures contract briefly traded below $0 per barrel, the value of oil is NOT negative
    • The current contract reflects the lack of storage capacity for deliverable oil in May.
      Futures Prices as of 4/20/2020
      May 2020 Contract ($38)
      June 2020 Contract $20
      November 2020 Contract $31
      May 2021 Contract $34
  • Being said, lower oil prices mean less drilling and exploration activity because most of the new oil driving the economic activity is unconventional and has a higher cost per barrel than a conventional source of oil. Less activity leads to lower productivity, increased bankruptcies and ultimately layoffs, which will hurt the local businesses that catered to these workers.
    • According to a PriceWaterhouseCooper LLC report, some 10.3 million Americans have jobs that are directly in, or support, the US oil and gas industry. Furthermore, an additional 2.7 million jobs could not exist if it weren’t for this industry. That equates to ~6% percent of the nation’s total employment. And those people who have jobs in the oil and gas industries bring home a combined $714 billion.


Disclosure: This Commentary represents a review of topics of possible interest to Pennsylvania Trust’s clients and is not personalized investment advice. It contains Pennsylvania Trust’s opinions, which may change following the date of publication. Information obtained from third-party sources is assumed to be reliable but is not guaranteed. No outcome — including performance — is guaranteed, due to various uncertainties and risks. This document is not a recommendation of any particular investment. Investment decisions for clients are made on an individualized basis and may be different from what is expressed here. Past performance is no guarantee of future results.