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What Does Oil's Huge Loss Mean For SIMM?

Updated: Apr 29

By Mathiew Stasiw.


Oil Plunges

Oil has seen one of the worst crashes in over four decades. As of Monday, April 20th, oil prices have crashed below zero dollars per barrel. This marks the first time in recorded history to ever happen, and the worst open for oil since 1983. This phenomenon did not come unsuspected, however. Over this past month, many experts warned oil prices could have dipped into negative territory amid the issues caused by the coronavirus pandemic. This drastic fall means that oil companies have started paying customers to take the commodity of their hands. Why is this happening? With hundreds of millions of people around the world staying home in order to stop the spread, the demand for cars or planes is basically non-existent. Amid recent news that oil added more than 19.2 million barrels to its inventory build, it is evident that there is an immense surplus. The common Americans could find themselves seeing gas prices under a dollar per gallon. Truly an odd circumstance.


Negative Effect on SIMM

This drop in oil futures could have some not so ideal aspects to our SIMM portfolio. Speaking on a general aspect, the market, psychologically, is in a state of fear. As we have seen in the past, negative aspects affecting oil ultimately have an influence on the rest of the global market. In fact, most of the global market is red as of closing time Monday, and this aspect could continue for the time being given that the negative news will continue. With this in mind, our general SIMM portfolio will see a loss amongst negative news. Although, optimistically, it will only be short term.

Positive Effect on SIMM

This news could have some upsides to SIMM. For example, our portfolio has recently acquired UCO, a ProShares ETF of crude oil. With this in mind and the prices per share being very low, our long-term outlook with this stock is very optimistic. Demand for oil is evidently going to raise again in the future which will raise the price per share. With hopes that prices could return back to the 52-week high, our investment could see a 20x upside. A unique opportunity for SIMM.

Sources:

  1. https://oilprice.com/Energy/Crude-Oil/Oil-Prices-Sink-On-Record-Breaking-192-Million-Barrel-Crude-Build.html

  2. https://www.cnet.com/roadshow/news/oil-prices-negative-market-crash-coronavirus/

Picture: https://citizen.co.za/business/business-news/2272219/us-oil-price-collapses-to-37-63-yes-sellers-have-to-pay-buyers-to-take-it-now/

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(January 2020)

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