World Oil Analysis of Current Rates

18 March 2020
World Oil

As global oil prices continue to plunge, World Oil analysis of historical records indicates that current rates are the lowest/worst since late 1997 through mid-1999, on a constant dollars/today’s money basis. The late-1997 through mid-1999 period, of course, was the time during which the Asian Financial Crisis occurred.

It is unfortunate that this precipitous fall in oil prices has been caused by Russia and Saudi Arabia, which have resorted to dumping oil on the global market, at the very same time that the rest of the world is trying to cope with reduced economic activity and falling oil demand caused by the Coronavirus. This childish posturing by both countries is extremely irresponsible, in a global economic context. It does no one any good.

Some national media in the U.S., as well as in other countries, have termed today’s (March 18) oil prices the lowest/worst since early 2002 (after 9/11). This is true, but only in the context of nominal (as they first occurred at that time) oil prices.  To fully appreciate the historical nature of where prices now sit, one has to look at prices adjusted for inflation, referred to as “constant dollars” or “today’s money.” World Oil has been working for several days on converting historical oil prices into rates expressed in constant dollars. The results of this effort are quite revealing.

Comparing apples to apples. For instance, some industry professionals might be tempted to say that the oil price trough of 1986 through 1989 was the worst period, ever.  But that’s not quite true—in the heart of the 1986 price crash, during several months in the middle of that year, the constant-dollar, monthly average price fell below $30/bbl, as in $28.41 in March, $28.65 in April and $29.98 in June. But even in the worst month of 1986, July, the inflation-adjusted price was $25.92. Today’s (March 18) closing price on the NYMEX—$20.37—is noticeably lower than the constant-dollar prices of 1986.

In fact, today’s closing price is only slightly higher than the monthly averages of December ($17.67) in 1998 (during the Asian Financial Crisis), and January (19.48) and February ($18.72) in 1999. Thus, we find ourselves nearly in record territory. Obviously, this is a serious situation, with serious consequences for operators, equipment/service companies, drilling contractors and other firms, both in the U.S. and globally in other countries. It is incumbent on the U.S. and other governments to take Russia and Saudi Arabia to task on oil production levels and hold them accountable.

World Oil will continue to work on these historical numbers and provide more analysis related to them later this week, along with some very interesting charts.

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