Oil futures (CL) dropped over 4% this morning from $35.08 to $33.62 before bouncing back slightly. The last few days of trading have wiped out all gains this commodity has made since May.
While last month saw prices struggling to maintain $40/barrel, the price has been pushed lower alongside with news of European lockdowns, US elections, and higher Oil output from Libya. Following a truce in their civil war, Libya has been extracting 800,000 barrels per day with a target of 1.3 million barrels per day in 2021.
Gloomy Global Outlook
Part of the reason for Oil’s 45.5% decline in value this year has been due to global coronavirus restrictions that have either stopped people from leaving their homes, or at best, encouraged employees to work from home.
England is bracing for a four week lockdown to go into effect later this week. This will require all non-essential businesses to close until at least the start of December. At the same time, other European countries are enforcing various degrees of lockdown, which seeks to limit in-person interactions in an effort to curtail the virus’ spread.
These lockdown limitations are expected to reduce transportation significantly and may have a negative impact on the Oil industry which relies on this for not only product consumption, but to fuel optimistic trader outlooks.
Oil Companies Race to Cut Costs
As Oil futures struggle to push higher, producers are cutting costs to try and lay low until demand returns. As a result, Exxon (XOM) announced last week that it will be cutting 19,000 jobs, or 15% of its global workforce. Royal Dutch Shell (RDSA-L) and BP (BP-L) both announced that they will be cutting investor dividends while Chevron (CVX) intends to invest only $14 billion into future Oil ventures next year.
With WTI (CL) closing out last week at $35.71 and Brent (EB) finishing the week at $36.14, traders are speculating on what prices will be needed for the world’s Oil giants to regain their previous status.