OpenMarkets Weekly: The Oil Market’s Ripple Effects

At a Glance

  • Many large sovereign wealth funds must find ways to repatriate money as oil prices sink

The recent oil price war between Saudi Arabia and Russia has had ancillary effects in energy markets and beyond. Jack Bouroudjian looks at three problems associated with price disruptions caused by this feud:

-A fragile oil services industry in the United States, tied to shale production, could be one of the first causalities.  Many of these shale producers and service companies depend on Crude over $40 per barrel for profit. A prolonged price war could put many in difficult positions with less revenue and growing debt.

-The weighting of  large energy companies in the S&P 500 makes the entire equity market vulnerable as the oil conglomerates go lower.

-Of the top ten countries who have sovereign wealth funds, eight are from oil producing nations, the other two are China and Singapore. These funds totaled over $8 Trillion as of the start of 2020. As crude prices go down, many of these funds must find ways to repatriate funds back home to cover budgetary concerns. As prices continue to go lower, we could see more Sovereign Wealth Fund liquidations.

Watch Jack’s full remarks in this week’s episode above.

OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance, economics and politics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

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