Beyond Bulls & Bears


Quick Thoughts: Oil Markets Are Lacking Energy

Our Head of Equities Stephen Dover gives his take on the recent single-day collapse in oil futures contracts, and what he thinks it means for oil prices, as well as producers and consumers.

Oil did the seemingly impossible this week—oil prices fell over 100% in a day. Buyers were effectively paid to have crude oil delivered to them, as futures contracts for May delivery traded below USD -$35 per barrel (bbl) at one point.

Humanity is experiencing the hardship and profound devastation from COVID-19, inadvertently contributing to the worst day for crude oil prices in history.

  • Despite recent Russian and Saudi Arabian agreements to cut production, we believe the demand for oil-based products will continue to be far below the supply.
  • Energy stocks have underperformed for so long that they no longer have much impact on overall equity market returns.
  • Only 10 years ago, Exxon was the largest market capitalisation stock in the S&P 500 Index.1 Now, the market value of all the energy companies in the index is less than that of Google-parent Alphabet.2
  • The MSCI Emerging Markets Index is much more dominated now by information technology/communication services stocks and consumer stocks, which are 30% and 22% of the index, respectively.3 In 2010, energy companies comprised nearly 14% of the index.4
  • The countries hurt by the fall in crude oil prices include: Saudi Arabia, Russia, Iraq, UAE, Kuwait, Iran, Canada and Norway. Countries that benefited from lower prices include: European countries in general, China, Japan, United States (a net gain despite shale), India, Korea, Singapore, Thailand, Australia and Taiwan.
  • Extraordinarily, the price of spot crude oil remains at about US$20 bbl, meaning the drop was isolated to futures contracts—which represent agreements to buy or sell a commodity at a specified future date.

The problem is that currently more oil is being produced than can be consumed or stored, so oil’s negative price is only available to those with storage capacity. The low crude oil price is a shift from producers to consumers—the equivalent of a tax cut. This shift should be a boost to the world economy overall, as most of the producers who will bear the burden are governments, such as Russia and Saudi Arabia, while the beneficiaries are consumers and industry.


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1. Source: S&P Dow Jones Indices. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses and sales charges. Past performance is not an indicator or a guarantee of future performance. See for additional data provider information.

2. Ibid.

3. The MSCI Emerging Markets Index captures large- and mid-cap representation across 24 emerging-market countries. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. See for additional data provider terms and conditions.

4. Ibid.

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