Publications: Notes at the Margin

Too Much Oil? (October 5, 2020)


Global oil supply is increasing and will rise more over the next three months even as world consumption drops. Growing US output and higher exports from Saudi Arabia explain the greater supply. Under these circumstances, global markets could repeat the fourth-quarter 2018 experience in which prices fell from $83 per barrel on the last day of September to $50 on the last day of December.


Seasonal factors, particularly the decline in US housing starts, get credit for the drop in consumption. Housing boosted use during the summer even though consumers overall moved away from gasoline, especially in August. Further declines can be expected during the last quarter of 2020 as the effects from economic stimulus wane. On top of that, the spread of Covid-19 through Washington, DC, is alarming. Senate Majority Leader Mitch McConnell has put off the senators' return to work for two weeks, which means nothing more will be done during that time to arrest the virus' spread or provide additional economic relief to Americans.


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