White House economic adviser Larry Kudlow predicts that the price of oil should recover over the next several months as the economy starts to reopen following strict coronavirus lockdowns.
“Demand collapsed. The coronavirus worldwide caused the collapse in demand. Through no fault of anybody, this virus has pushed us into a big economic contraction,” the veteran financial guru and former Ronald Reagan adviser told CNBC.
“We’ll come out of this soon, the economy will reopen, the economy will restart,” said Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985.
“It will, I hope, take care of itself. Markets will take care of themselves over time,” said Kudlow, who served as the Trump campaign's senior economic adviser.
Kudlow spoke as Brent crude oil sank below $16 a barrel to its lowest since 1999 on Wednesday, before recovering slightly on the prospect of extra pledges to cut output in addition to a pact by major producers to limit supplies.
International benchmark Brent crude, which fell 24% in the previous session, touched $15.98 a barrel on Wednesday, hitting its lowest since June 1999. By 1225 GMT, it had recovered to $21.16, up $1.83 or 9.5%. U.S. West Texas Intermediate was up $2.26 or 20%, at $13.83, Reuters said.
Kudlow explained that many factors fueling the oil-price collapse where out of American leaders' control.
“The United States the rig count is way down, demand is way down, production is falling. There’s not much we can do about that,” Kudlow said in the interview. “There’s a lot of deflation out there as we go through this contraction. ... We will propose regulatory, and tax and investment policies to help out as best we can,” Kudlow said.
“I’m hoping that this oil slump will prove to be temporary,” he said.
Analysts said the price levels were now so low they would a big impact the amount of oil companies could produce without facing deep losses.
"Overall, we are at price levels which will have a strong impact on production worldwide," Olivier Jakob, oil analyst at Petromatrix, said.
Another analyst said there could be worse to come.
"Be prepared for more surprises in this broken oil market," Rystad Energy's head of oil markets Bjornar Tonhaugen said.
The prospect of supply outstripping demand for several months led to some of the most volatile oil trading in history on Monday and Tuesday.
The front-month U.S. contract fell below zero for the first time ever ahead of its expiry on Tuesday as the prospect of taking delivery of surplus oil with nowhere to store it because capacity is full sowed panic.
Wednesday's price lows for Brent were last seen when business and consumers were concerned - unnecessarily as it turned out - about the Millennium Bug affecting computers after the turn of the century.
At the same time, OPEC was again tackling a supply glut, but then the drop in demand had been far less extreme than that triggered by the current restrictions on movement worldwide to tackle the coronavirus.
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