The Coronavirus is being blamed for just about everything these days, hand sanitiser and toilet paper shortages as the current examples. Though were you also aware that the virus is said to be partly responsible for large drops in the value of oil and gas markets?
2020 started out fairly positive for the U.S. domestic gas and oil industry, with the West Texas Intermediate (WTI) benchmarking the price of oil at about $63 a barrel. Though there was an immediate sharp fall thanks to news and cases of the Coronavirus spreading. Investors think that because the economy of China, the largest growth market for oil, is flatlining as a result of the disease, the value of gas and oil is plummeting.
U.S. energy companies on the S&P 500 haven't underperformed as badly as they are doing currently since 1941! The S&P Oil and Gas Index itself is down more than 30 percent, with even companies like ExxonMobil feeling the pressure. Though not as much as some of the smaller suppliers. Think of Chesapeake Energy, a tiny company in comparison to Exxon. Their shares were valued earlier in 2020 at $2.25, yet have recently hit an all-time low of just $0.25.
So what does any of this mean? There has always been the prospect of over-supplying the global markets for crude oil and natural gas to breaking point, with the U.S. market described as chronically over-supplied. Though companies have been protected by an OPEC+ arrangement that has in effect given them a three-year cushion. But the arrival of the Coronavirus, following the elimination of the so-called 'fear premium' companies used to set because of upheaval in the Middle East, means companies will have to deal with that over-supplying issue far sooner than they are ready to. Not every company is going to have the assets to survive.
At its worst, the WTI index fell to just short of $45 in February. And while it has recovered since then, there are very uncertain times ahead for the gas and oil industry. This Coronavirus pandemic is continuing to impact us all, in all kinds of unexpected ways.
