What's going on?
The fairgrounds might be shut, but that didn’t stop oil from having one of its wildest weeks ever.
What does this mean?
The price of a barrel of oil hit lows not seen since 2002 halfway through last week, as the falling demand that accompanied the dramatic slowdown in global economic growth dovetailed with a sharp increase in supply – namely Saudi Arabia’s price war-driven boost in oil production.
But later that same week, oil’s price rose by 24% – the most in a single day, ever. That could be down to the green shoots of an economic recovery popping up in China, or reports that Russia would be open to mending fences with Saudi Arabia. Investors might have the States to thank for that: the US may soon weigh in to help the two reach an amicable resolution and strike a better balance between supply and demand.
Why should I care?
For markets: Rootin’ tootin’ regulatin’.
Several large oil producers have already responded to the commodity’s lower price by announcing major cuts to their spending plans, share repurchases, and dividends. But the US oil regulator in Texas – the country’s biggest oil-producing region – is considering going one step further to offset the price decline and limiting output from the area for the first time since the 1970s. That should benefit refiners too, which buy oil and sell on the finished products: those companies usually benefit when oil is cheaper, but since the prices of those end-products have also dropped, it’s becoming more of a struggle to turn a profit.
The bigger picture: In with the old.
With the oil price sat below $30 a barrel – around 50% lower than at the start of the year – the economic argument in favor of using renewable energy over oil likely becomes harder for companies to justify in the near to medium term. At least Italian energy giant Enel is sticking to its renewable guns, announcing on Friday that demand for its renewables hadn’t slowed yet.