We saw a massive selloff in both the oil and stock markets.
The coronavirus was spreading enough fear on its own. Sunday night, things were escalated with a price war breaking out between the Russians and Saudi Arabia over oil. This is a situation that could have great impact globally.
It started by leaving carnage behind in the stock market. The DOW dropped by over 2,000 points on Monday.
This led Jim Cramer to take to the air to express his confidence, or lack thereof, with the oil industry. A sustained periods of low oil prices is going to hurt a lot of oil companies.
Here is what Cramer said:
Of the more than 35 companies in the oil industry he follows, Cramer said, “I think fully maybe 9 or 10 can go.”
The standoff between Russia and Saudi Arabia will have enormous impact on the United State oil industry. Many of the companies are carrying high debt loads which become harder to service as the price of oil drops. The Russians and the Saudis are both selling oil at a loss with the levels we are at now. They can, however, withstand the battle longer than many of the U.S. companies who have debt coming due this year.
Low oil prices are a mixed blessing for the economy. Naturally, any company that uses a lot of petroleum will benefit from lower prices at the pump. The negative is that the oil industry employs a lot of people, many with high paying jobs. Prolonged prices at these levels could mean massive layoffs. At the same time, transports such as the railroads could see a reduction in what they move since oil transport makes up a significant part of their business.
Regardless of how this all unfolds, the oil industry will rebound at some point. There will be bankruptcies which clear out some of the weaker hands. Over time, the industry will consolidate and start its path of growth.
Even with the drastic increase in renewable energy, the simple fact is the global energy needs are increasing at a pace greater than it can provide.
The challenge is that this could be a 2 year process with a lot of pain felt in the process.
This is not financial advice.
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Gold and precious metals miners use a lot of petrol, and as the PMs rise, the miners will be extremely profitable. The market will begin to see the link. Realty will set in when the big oil companies start cutting dividends.
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Or worse, when they start defaulting on the debt.
Either way, reality will set in at some point.
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The defaults and credit downgrades have begun as of today........Petrol industry is dying, dividends have been slashed.
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Dont believe the hype about Petrol....In the US alone, there are over 275M gas powered cars on the roads that are not going anywhere anytime soon. More than 70M were sold in the last 5 years, almost all gas powered. Hell, they are all still under financing.
The industry is going to die, but not anytime soon. It is going to take 15 years for it to all cycle out. China and Africa are actually going to be adding fossil fuel for the next few years. I dont see peak oil until about 2025-2027.
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those companies who make use of oil products will be excited about the current low prices of the oil....it will be a kind of blessing for them..... @taskmaster4450le
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the oil industry seems to be dwindling and i believe that those who invested massively into the oil sector should be careful on their investments and create a good risk management strategy to be able to prevent any form of huge loss on their investments...
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if bankruptcy occurs in the oil industry then so many investors will be so much affected because there are many investors who have invested heavily on the oil market....
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