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‘The cure for low oil prices is low prices,’ energy expert tells Boom Bust

‘The cure for low oil prices is low prices,’ energy expert tells Boom Bust
The Covid-19 outbreak has severely cut demand for crude and tumbled oil prices. As the crisis hits the US oil industry hard, with 40 percent of rigs going offline, Boom Bust investigates how the sector is coping.

The panic over the lack of space to store oil and expiry day for WTI contracts for May delivery pushed their prices to historic lows, with WTI trading below zero for the first time in history last week. Despite looming OPEC+ cuts, the energy market continued to fall this week, with WTI trading below $11 per barrel, while international benchmark Brent was also down to around $20 per barrel. 

“The cure for low oil prices is low prices,” Rick Rule, chairman of Sprott US Holdings, told the hosts of the show. “The very fact that we’re running so few rigs means that the cure is already being worked on,” he said, adding that the rapid decline in US oil production, especially in shale companies, is the consequence of less sustaining capital investment. 

The US government said earlier that it could take equity stakes in energy companies to help the troubled industry amid the coronavirus crisis. The move, however, would not work for good, Rule noted. Such a “bad use of taxpayers’ money” would only lead to politicization of the industry and result in even “more damage than the virus has done.” 

However, the analyst believes that the US energy sector is still determined to come back, though the process will be a “mess.”

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