Oil Price Crash Waves a Red Flag for Global Investors
April 21, 2020
An unprecedented slide in the price of crude oil this week could be an indication of economic pain ahead for global investors.
A barrel of West Texas Intermediate (WTI), the benchmark for US oil, traded for $-40 yesterday, the first time it has ever traded negatively. The futures market seems to indicate the price could be low for the months of May and June as well. The problem seems to hinge on a severe shortage of storage options for crude oil. If economic problems persist, the global benchmark Brent could also trade below $0, according to Citibank analysts.
A number of family-owned businesses stand to loss in this downturn. In Singapore, the Oon Kuin family’s oil trading giant Hin Leong filed for bankruptcy after the founder admitted he hid more than $800 million in losses speculating in oil futures over the years. India’s Ambani family lost ₹30,000 crore (US$3.9 billion) when markets opened in Mumbai today. On the other side of the planet, billionaires Harold Hamm, the Koch Brothers, Phil Anschutz and George Kaiser are all exposed to the collapse in crude oil.
However, some sectors stand to gain from lower fuel costs. Airlines, for example, could see fuel costs dwindle when flights resume if they can stockpile oil for future use. Consumers might also be willing to spend more on gas-guzzling vehicles and discretionary goods when cost-savings kick in.
For the moment, the global economy remains shut, creating distressed asset opportunities for institutional investors and family offices with liquidity on hand. Stocks, bonds, real estate and equipment from the energy sector could be a critical opportunity for savvy investors with a long-term horizon.