However, the carnage in the oil markets didn't stop there, as a further 30% cut in consumer demand caused prices to continue cascading lower, hitting negative $40 per barrel at one point in the trading session, later settling at negative $37.63 per barrel.
This of course is the lowest price that oil has ever traded at, in all of its history on the markets, symbolizing just how dire of an economic situation we now find ourselves in. A true black swan event.
Large sectors of the economy are all but virtually shut down, meaning that demand for oil has fallen off a cliff, leading to a huge surplus of oil reserves, that continue to pile up in warehouses, as consumers simply have no need for the tremendous amount of oil being produced on a daily basis.
(Chart source, oilprice.com)
Fortunately, in recent days these lows were not maintained and the price of WTI Crude, along with other key benchmarks have staged a rally, however, they still remain at historically low levels, of which are not profitable for many producers.
The Canadian oil markets, which already trade at a disadvantage due to a number of significant factors against it, are especially hard hit by this crash lower in prices and are unlikely to see a recovery anytime soon, even if normality returns in the short to medium term.
Sadly, if this crisis continues on in its current state, or god forbid, things deteriorate even further, then you can rest assured that this will not be the last time that we witness negative oil prices, which would devastate the oil industry even more than it already has been, especially if as some health experts are stating, that this crisis is very likely to have a second wave come the fall of 2020.
Gold Miners Benefit
It is not all doom and gloom however for the entirety of the commodities sector, as gold producers are uniquely positioned to benefit in these dire times, especially if they are capable of continuing production throughout this crisis.
Miners such as Barrick Gold Corp and Newmont Goldcorp are two of the largest gold bullion miners in the world and as can be seen from the chart below are weathering this crisis much better than most.
(Chart sources, globeandmail.com)
It is a fact that the price of oil is one of the largest cost inputs for precious metal miners and miners in general, with the price of oil having a direct impact on the total cost that it takes to get commodities out of the ground.
This means that miners are now able to get materials out of the ground at a much lower price than they would of previous been able to do so, just a few short months ago when the price of oil was higher.
For most miners, this point is moot as demand for many commodities is suffering alongside oil, however, gold bullion is not one of these commodities. In fact the demand for physical gold bullion is through the roof.
The reasoning for this is of course the vital role that gold bullion has played for over 10,000 years in the our financial history, acting as a safe haven asset in times of need, strife and economic crisis. Of which our current time period most definitely qualifies as.
(Chart source, goldprice.org)
This is why you are seeing the paper chart prices for both gold and silver bullion remain at healthy levels, even while everything else seemingly turns to mud.
However, when looking at the physical precious metals markets, you see a much different picture being painted, as premiums continue to remain at elevated levels, disconnecting themselves from the largely fraudulent and easily manipulated paper price.
These premiums are due to the incredible demand that physical metals are currently and have been experiencing since this crisis kicked off in earnest and of which I believe is a trend that is only going gain traction the longer COVID-19 remains a threat to society.
Because of this, gold bullion miners, most notably the titans of the industry such as Barrick and Newmont, who have the capital to continue operations throughout this crisis are going to uniquely benefit and thus continue to increase in price as they reap the dual benefit of increased demand and lower mining costs.
Opportunity still exist, even in these dire times.
Stay safe and keep stacking.
- Source, Nathan McDonald via the Sprott Money Blog
