The Unprecedented Oil Crash | Explained

Indian Express mentions, "US oil markets created history on Monday when prices of West Texas Intermediate (WTI), the best quality of crude oil in the world, fell to “minus” $40.32 a barrel in New York. Not only is this the lowest crude oil price ever known — according to Bloomberg, the previous lowest was immediately after World War II — but also well below the zero mark."

Let me explain meanwhile, what actually happened in very simple terms.

"I am an investor or trader. I make my money by indulging myself in buying and selling stocks and commodities. In January, I thought that the prices of oil will rally in the coming months and hence I took a long position. A long position means I bought the contract at a specific price. This contract says that Shashi Prakash would buy WTI Oil from the other party (Let’s say Mr Shell) at $35/b and the delivery will be made in May 2020. So, what am I going to do with the delivery of oil? That’s the beauty of the game. In fact, I would not take the delivery and instead I would offset/exit/rollover my contract as per my gains/losses made in between these months. Why in heaven I need to buy those oil barrels? Here comes the month of April and May, and the oil prices never went up. In fact, I am in the red territory since the start of the game. Now I say to Mr. Shell, that look I can’t buy it right now; Just store it somewhere on my behalf and I would pay you the storage cost. But today is the last date else, those barrels would be delivered on my doorsteps. I ask Mr. Shell that please store it in your tankers for a time being. My Shell has no place to store up the oil in physical form as the tankers are already full. No one in the market is buying oil for the usage purpose like flights/shipments and all. Mr. Shell says, “Look, I can’t really hold up these oil barrels. These are your properties and you mind the same”. Now I will pay him again an amount, suppose $10 in order that he doesn’t deliver the item that I asked for.

Conclusion: You paid $100 to Amazon to deliver a product XYZ. Amazon is going to deliver it to you in 3 days. On the second day, you request Amazon not to deliver the product and you pay $40 again so that they entertain your request. Why so? Because It is less costly to pay $40 to Amazon and get rid of that product XYZ instead of storing it."

  #OilPrices

Let's switch to a few jargon and terminology now.

We are specifically talking about the WTI futures contract. WTI May futures contract which expires on Tuesday, requires future buyers to take delivery of the oil in Cushing.

Okay. Let me slow down and explain three things meanwhile i.e WTI, Futures Contract and Cushing.

1.     WTI: West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. This grade is described as light crude oil because of its relatively low density, and sweet because of its low sulfur content. It is the underlying commodity of New York Mercantile Exchange's oil futures contracts. The price of WTI is often included in news reports on oil prices, alongside the price of Brent crude from the North Sea. Indian refiners say they prefer to continue purchasing oil at prices that are linked to the Brent. The reason behind the same being the inland movement and a long ocean voyage involved in buying American crude oil which narrows down the price difference to a point where it is not worthwhile. Also, it is about the gross refining margin (GRM). The GRM is the difference in dollars per barrel between the product revenue and the cost of raw material. It is one of the factors that represent the economics of a refinery. Bottom Line: Indian refineries will be a bit less affected by this news.

{Fun part: So this is not going to happen that you would go to petrol pump for the refill and after the same, you will ask the staff to give you money instead as the prices are in negative territory. :p Twitter India has been flooded with memes as well on this news.}

Jokes apart, let's proceed further. 

2.     Futures Contract: A futures contract is an agreement to buy or sell an asset at a future date at an agreed-upon price. Futures contracts are standardized agreements that typically trade on an exchange. One party agrees to buy a given quantity of securities or a commodity, and take delivery on a certain date.

3.     Cushing:  Cushing is a city in Payne County, Oklahoma, United States. It is a critical storage hub where the oil that trades on the U.S. futures market is delivered. With a capacity to hold 80 million barrels of oil, Cushing has only 21 million barrels of free storage left, according to Rystad Energy, or less than two days of American production. As recently as February, Cushing was not even up to 50 percent. Now, experts say it will be filled to the brim in May.

So, as I said that futures contract and that’s of May is going to expire on Tuesday have gone in negative territory. Given that there is little in any storage space available, people are ditching their contracts to avoid taking physical delivery. Instead, they are buying June dated contracts which is $23 a barrel.

Now, none of this is happening with the Brent Crude futures. Because delivery of the Brent crude can be made to a variety of locations around the globe, unlike WTI.

In simple terms, like Forbes, as reported, “the flexibility of the Brent futures contract means that lack of storage in one place isn't forcing traders to dump futures contracts in the way that it is with WTI futures”

Refineries are unwilling to turn oil into gasoline, diesel and other products because so there is no traveling happening. The airplane flights, international trade, shipments have slowed drastically and hence there is no demand. Oil is being already stored on barges. And the storage tanker companies are really on a high note because of this. Let’s justify the same with numbers.

The world has an estimated storage capacity for 6.8 billion barrels, and nearly 60 percent is filled, according to energy experts. NYT reports, “Shutting down oil wells and then restarting them when demand returns can require expensive manpower and equipment. Fields do not always recover their former production. In addition, some oil companies keep pumping, even if they are losing money, in order to pay interest on their debts and stay alive. Halliburton, the giant provider of equipment, workers, and services to oil companies, on Monday reported a $1 billion loss in the first quarter, in contrast to net income of $152 million in the same period a year earlier”

Notes:

Please go through these terms as well to understand the more exhaustive articles on this matter: 

1. Contango is a situation where the futures price of a commodity is higher than the spot price. Contango usually occurs when an asset price is expected to rise over time. The premium above the current spot price for a particular expiration date is usually associated with the cost of carrying. The cost of carrying can include any costs the investor would need to pay to hold the asset over a period of time. With commodities, the cost of carrying generally includes storage costs and cost risks associated with obsolescence. The bottom line is that you have got long on the contract but you don’t want the physical delivery now. You ask the seller to keep it meanwhile and you would give him the cost of carrying.

2. Short Squeeze

3. Initial Margin Requirement

4. Mark to market 

5. Backwardation

6. The trading arms are even tweaking their software to deal with these situations. In short, the programmers of those trading softwares had never expected the prices to end up in the negative territory.

7. The situation has raised because of Demand and supply mismatch. The cartel agreed to cut their production in the recent meet but it had been too late and the numbers had been too less perhaps. Read more articles on the same for reasoning. 

References:

1. https://www.thehindubusinessline.com/economy/why-india-prefers-brent-to-cheaper-us-crude-oil-wti/article20325364.ece1

2. https://www.nerdwallet.com/blog/investing/started-futures-trading/

3. https://www.investopedia.com/terms/c/contango.asp

4. https://en.wikipedia.org/wiki/Cushing,_Oklahoma

5. https://www.marketwatch.com/story/why-the-oil-market-just-crashed-below-0-a-barrel-4-things-investors-need-to-know-2020-04-20

6. https://www.barrons.com/articles/oil-futures-fall-below-1-for-first-time-ever-51587406408

7. https://www.google.com/search?q=oil+futures&sxsrf=ALeKk03NnCSO7IgMQugRwTivPzIB-c8FQg:1587431364600&source=lnms&tbm=nws&sa=X&ved=2ahUKEwi71N3UqvjoAhUWcCsKHRjUBDYQ_AUoAXoECBAQAw&biw=1309&bih=746
8. https://static.seekingalpha.com/uploads/2018/9/23/49111513-15377151610224535.jpg

The Indian Civil Aviation Sector

Before starting out the article, let us look at the estimated loss figures in the industry for the Q1 FY21[MOU1] 

  

Not only the carriers but the entire value chain is going to be affected severely if we study the details of the issue.

If we talk about scheduled airlines then there are 7 players currently in India:

1.     Air India

2.     Vistara

3.     IndiGo

4.     GoAir

5.     Air India Express

6.     Spice Jet

7.     AirAsia India

Air Deccan, Air Heritage will come under the regional airline header and hence we have not included them.  FYI: Air Deccan has become the first Indian aviation company to succumb to the COVID crisis that has paralyzed the sector.

Also, we need to know the number of carriers that each player do have:

The table shows the fleet size under the 'count' head along with the parent organization and the majority stake. In the last column, the market share of airlines is quoted under the 'share' head. 

Sector in ICU?

1.     Tata Sons: There has been a lot of talk in the sector that TATA need to choose either one in between Vistara and Air Asia India as the losses keep piling up. In FY19, the operating losses for Vistara were Rs 846 cr while for Air Asia’s India was Rs 703 cr. In the market share, Air Asia seems to have done things right while in terms of fleet size, Vistara has become relatively a large carrier.

2.     Jet Airways: In March 2019, Naresh Goyal gave up his 51% stake in the company. In April, the fuel suppliers refused to supply. In the same month, a plane operating flight 9W321 to Amsterdam was seized by another airline over nonpayment of fees. Jet airways went bust basically and currently has been dragged for the insolvency process. Overdue payments, debt summing up to Rs. 8000 crores, volatile oil prices, greater than sustainable discounts offered, inability to compete with other market dominators and many more contributed to the Jet crumble. One of the biggest reasons for its failure can also be traced back to its $500 million purchase of Sahara in April 2006 when financial experts advised against it. 16,000 jobs were lost because of the debacle.

But what happened to the 123 aircraft that were in Jet’s possession?

Answer:  12 remain with it while 29 are still stored, 40 are in India with Spicejet, Vistara and Trujet.

3.     Spice Jet: The company had substantial exposure to Boeing. Around 13 Boeing 737 Max needed to be grounded in the March 3^rd week after the same plane was involved in the two plane crashes (Lion Air Flight 610 and Ethiopian Airlines flight 302)

4.     IndiGo:  It had placed an order of 300 Airbus aircraft in an estimated $33 billion deal. It would be interesting to check if the order size is revisited in coming months?

5.     Let’s visit this Bloomberg Report:

“Which airlines are most at risk? Like the virus, the crisis is indiscriminate, affecting everyone from budget operators to national flag carriers. Aircraft manufacturers and their suppliers also are under immense pressure, with Boeing Co. calling for billions of dollars in state support and Airbus SE extending credit lines and canceling its dividend.

Remark: If the report is true, then the inclusion of SpiceJet and Air Asia Indonesia is not good news for the industry. Impact over any of the subsidiary held by Air Asia would be detrimental for the prospect of survival of Air Asia India as well. The unwillingness of Tata group as well in the JV would mean a perfect screenplay for the death of Air Asia India as a whole but meanwhile, let’s wait and watch.

6.     The delay in getting Aviation Turbine Fuel under the purview of GST. Aviation Turbine Fuel (ATF) in India has not yet been brought under the goods and services tax (GST) regime. The central government currently charges 11% (it was 14 percent initially) excise duty on ATF and state-level taxes can go as high as 30%. The cost for the same may go as high as 50 percent of the cost incurred by the airlines. ATF accounts for almost 40 percent of any airline's total expenditure. Therefore, any taxation on ATF always has a huge impact on airline companies. If the throughput charges levies. The official said that at the Delhi airport if the throughput charges levied by the airport operator is only Rs 100, the airline ends up paying Rs 164 as it is paying "tax on tax", which includes the goods and services tax (GST), excise duty and value-added tax (VAT).

7.     The new norms would may mean that the carriers would be operating at 1/3^rd of their capacity and that would bring losses.

8.     “The revenue loss of the aviation industry spread across airlines, airports, and retail is estimated to be $1-1.5 billion per month of lockdown and about 70% of this will be borne by the airlines." as per CRISIL Ltd. 

9.     Almost 50 percent of the current fleet that Indian Airlines do have, have been taken on lease. So that even while they are on the ground, the lease rentals are being paid.

As of now, there are 274 flights being operated under the ‘Lifeline Udan’ program by the Ministry of Civil Aviation. Air India, Alliance Air, and private carriers are the players in the government’s program. According to a statement released by the government, these flights have transported around 463.15 tons of supplies covering an aerial distance of over 2,73,275 km till date. 

As we all wait for this epidemic to get over, we all need to keep 'watch and wait' mode for the time being. 

1.     http://www.knowindia.net/aviation7.html

2.     https://qz.com/india/1657169/can-nirmala-sitharamans-budget-help-spicejet-indigo-air-india/

3.     https://www.livemint.com/companies/news/air-deccan-ceases-operations-all-employees-put-on-sabbatical-without-pay-11586077400459.html

4.     https://www.moneycontrol.com/news/trends/expert-columns-2/jet-airways-shutdown-what-happened-to-its-123-planes-5153221.html

5.     https://www.bloomberg.com/news/articles/2020-03-26/the-airlines-most-in-danger-as-virus-inflicts-252-billion-blow

6.      https://www.google.com/search?q=airlines+sector+india&tbm=isch&ved=2ahUKEwjG_IjDivToAhXpHHIKHRnxArwQ2-cCegQIABAA#imgrc=FDswLV_Uaj0Q_M

---

 [MOU1]

As of March 2019, there are 137 operational airports in India. During FY20 (April-December 2019), air passenger traffic stood at 262.67 million. Out of which domestic passenger traffic stood at 210.61 million while international traffic stood at 52.06 million.

Is India going on for Trade War with Malaysia?

India is planning to widen curbs on palm oil from Malaysia to oil, gas and other products, news agency Reuters reported on Wednesday. India is the world’s biggest buyer of edible oils and has already effectively stopped importing palm oil from Malaysia by asking importers to look elsewhere. According to the report, New Delhi is now planning to restrict buying of petroleum, aluminum ingots, liquefied natural gas, computer parts and microprocessors from Malaysia. Meanwhile, another Reuters report said Malaysia will use diplomatic channels to try and resolve concerns over the palm oil exports.

World Economic Forum’s annual meeting for this FY at Davos is scheduled on 21st – 24th January 2020 and the sources have mentioned that Mr. Piyush Goyal, Minister of Railways and Commerce is not going to meet his Malaysian counterpart Darell Leiking

India imports 70 percent of its edible oils: soya, rapeseed, and palm. Palm oil leads the pack with a 40 percent share, of which 95 percent used to be imported from Malaysia and Indonesia. This once made India the largest destination for Malaysia’s refined palm oil.

Malaysia Palm Oil Export: 18.5 Mn tonnes

India imported 24% of the same ie 4.4 mn tonne followed by China at 8 percent.

3 points to know about this hostility:

1.    Malaysia had joined Turkey and China in raising the Kashmir issue at the United Nations General Assembly (UNGA), with its Prime Minister Mahathir Mohamad accusing India of "invading and occupying the country" of Jammu and Kashmir.

2.    On the citizenship law too, Mr Mahathir commented labelling it as “grossly unfair”

3.    The government of India has also been unhappy with Malaysia's refusal to revoke permanent resident status for controversial Islamic preacher Zakir Naik, who has lived in Malaysia for about three years and faces charges of money laundering and hate speech in India.

Because of these reasons, India has announced the curbs on imports of refined palm oil on Jan 8. Though the official reasons stated for the same has been mentioned to help domestic refiners raise their plant utilization rates, according to industry officials familiar with the matter. In a typical year, India relies on imports for almost all of its supply of the veg oil used in everything from soap to cookies.

The reason for such a stand by the Malaysian PM on internal issues of India can be attributed to these reasons:

1. Mahatir is trying to outflank his opposition leader Anwar Ibrahim by playing the Islamic card. He has not just attacked India but also has said things about Israel- Palestine issue to gain that status in religious front.
2. Mahatir is of Indian origin. His father, Mohamad Iskandar, was a Penang Malay of partly Indian ancestry. Mahathir's paternal grandfather had come from South India and married a Malay woman. To counter his image of that kind, he has said the statement about India in the past too.
As of now, Mahathir commented that "We are too small to take retaliatory action," He told reporters in Langkawi, a resort island off the western coast of Malaysia. "We have to find ways and means to overcome that," he added. The experts have been of the belief that India is not going to

Benchmark Malaysian palm futures fell nearly 10% last week, their biggest weekly decline in more than 11 years as the palm oil was shifted to 'Restricted category' from 'Free'

About Palm Oil:

Items that do have palm oil have their ingredients are Lipstick, Pizza, Soap, Biodiesel, cookies, chocolate, ice cream, instant noodles, shampoo. Though palm oil may be associated with these ingredients too.  "Vegetable Oil, Vegetable Fat, Palm Kernel, Palm Kernel Oil, Palm Fruit Oil, Palmate, Palmitate, Palmolein, Glyceryl, Stearate, Stearic Acid, Elaeis Guineensis, Palmitic Acid, Palm Stearine, Palmitoyl Oxostearamide, Palmitoyl Tetrapeptide-3, Sodium Laureth Sulfate, Sodium Lauryl Sulfate, Sodium Kernelate, Sodium Palm Kernelate, Sodium Lauryl Lactylate/Sulphate, Hyrated Palm Glycerides, Etyl Palmitate, Octyl Palmitate, Palmityl Alcohol"

Though few have the view that the ban on imports of Malaysian palm oil might end up hurting those on the poverty line in India, by increasing the risk of food inflation. Though many have argued on the same by mentioning that Indonesia may fill up that shortfall and India will be unaffected by the tension. Indonesia, the world's biggest producer of palm oil, boasts lower production costs and has a bigger share of the market in many palm oil-consuming countries. It has also historically offered palm oil at cheaper prices than Malaysia, although recently Malaysian export prices have slumped below Indonesian rates as Indian buyers retreated from the market. Though it would be interesting to see further developments with Malaysia as well as the ASEAN nations.

Do subscribe to our newsletter to get these articles at length. You may also follow Team_Osmosis Instagram page for regular updates on economic and financial news.

References:

1. https://www.intheblack.com/-/media/intheblack/allimages/magazine-2018/11-november/two-ships-canons-firing.jpg?rev=48d276c3294b4f1aa3dd6f4182adcba1
2. https://www.financialexpress.com/economy/drop-in-trade-deficit-with-china-only-if-hong-kong-is-not-counted/1551656/
3. https://www.deccanherald.com/business/business-news/indias-import-curbs-deal-big-blow-to-malaysian-palm-oil-795416.html
4. https://www.youtube.com/watch?v=mcYWoAEzoPQ&pbjreload=10

Elon Musk: The man OR myth worth the hype?

Let’s start the article with the EPS of Tesla. For a while, you may take EPS synonymous with the profit if EPS gets too technical. The snapshot of the Bloomberg Terminal does show that the company has made profits in 5 quarters after it went public in 2010. Out of 40 quarters (10 Years), the company has made a profit just 5 times (The fifth upward stick is missing from the chart. It was in 2013). There are multiple companies or organizations that are just bleeding money for the last many quarters and we wouldn’t be talking specifically about them but the bottom line remains that Mr. Elon Musk is inching towards to become the ‘Real Iron Man’ of this era. Hence, it becomes more important to understand and know more about the revolution that is underway for a decade now.  

(Note: The title of ‘Real Iron Man’ was first used by Bloomberg on Jun 10, 2014, to refer Mr. Musk)

There are 10 points that summarise Mr. Musk and the company itself. In the latter points, I have even mentioned Indian automobile companies justifying the header image with the data file too.

1.    The electric-car maker posted a surprise profit of $342 million in the third quarter of 2019. Wall Street had expected the company would post a net loss as big as $257 million. Tesla (TSLA) shares soared by up to 20% in after-hours trading. It marked the first quarter Tesla was profitable since the company posted back-to-back profits in the second half of 2018. Before that, Tesla had posted profits only twice since it went public in 2010 — once in 2013 and again in 2016.

2.    Tesla delivered a record 112,000 vehicles globally during the fourth quarter, significantly topping Wall Street estimates and achieving CEO Elon Musk’s year-end sales goal.

3.    Many analysts does believe that Tesla is ‘OverValued’. They are quite cautious about the company as they still haven’t settled for something that could be relied upon for a steady flow of revenue.

4.    The Tesla Gigafactory in Shanghai opened last year as China's first wholly foreign-owned auto production plant since the government eased regulations, and the sedans delivered this week were Tesla's first made-in-China cars to be shipped out to customers. The Chinese government lifted restrictions on foreign ownership for auto manufacturers in 2018. Previously, foreign carmakers could only produce and sell in China through joint ventures with Chinese companies.

5.    Influence of charismatic CEO: In the recent Bloomberg survey (https://www.bloomberg.com/graphics/2019-tesla-model-3-survey/market-evolution.html) _November_2019, a question was asked to around 5000 Tesla owners. Question: Did the opinion of Elon Musk influence purchases? 55.4 percent responded affirmative (30.8 percent- strongly agree, 24.6% agree).         

6.    Controversies: Elon Musk on 07 August 2018: Tweet: ‘Am considering taking Tesla Private at $420. Funding secured’ His tweet “set off a trading frenzy,” and pushed Tesla’s stock price up more than 6 percent, forcing Nasdaq to halt Tesla trading for 90 minutes until the company gave an official response. The company’s stock price hit the intraday high of $387 before closing at $379.57 on the day of the tweet. It's currently trading at 478.15 10 Jan, (7:59 pm GMT-5, 10 January, 2020·The US Securities, and Exchange Commission (SEC) sued Mr. Musk after his tweet. The SEC later claimed that the tweet was “false and misleading.” 

Outcome: Mr. Musk was directed to step down as chairman. Paid a fine of 40 million. Appointed 2 independent directors; Was directed to get his tweets reviewed before posting.

Other incidents include him smoking weed on Joe Rogan Podcast and calling Vernon Unsworth, the diver, in July 2018, a pedo guy in one of his tweets.

7.    China can be the swing factor for Tesla: The forecasted growth for the EV share for China is quite high. It is as high as 27 percent. Also, Tesla delivered its first China-made cars to its customers and it has come when Mr. Musk has been very popular in missing his deadlines.  

Tesla Killers in the Chinese market are  NIO, XPENG, GEELY, BYD

                

8.    The combined valuation of Tesla has eclipsed the total market cap of Ford and General Motors combined.

9.    The combined valuation of Tesla has eclipsed the total market cap of Ashok Leyland, Bajaj Auto, Tata Motors, Maruti Suzuki and Mahindra & Mahindra combined.

{Just for info: In the middle of these, Morgan Stanley Sales & Trading, US, has picked Maruti Suzuki India as one of the world’s top 20 stocks. According to a recent report released by Morgan’s trading arm, India's car market leader is best positioned when demand picks up.}

10. Tesla has become the 3rd most valuable company in the world after Toyota ($228Bn) and Volkswagen ($100.8Bn).

Tesla stock has doubled since October 2019. It may have eclipsed the valuation of major automobile firms but the fact remains that sale wise, it accounts for just 3 percent of joint vehicle sales volume (Ford and GM). The execution risk more than ever. And the fact remains that the company is about to report its 10th annual consecutive net loss (In the first para we had talked about quarters)

Till then, let’s see how things unfold for Tesla and the legend, Mr. Elon Musk.\

The excel sheets have been attached to this link for further references: File

The Article may be downloaded as pdf from the following link

Reference:
1.    https://www.investopedia.com/terms/e/eps.asp
2.    Bloomberg Technology – Taylor Riggs
3.    https://www.bloomberg.com/graphics/2019-tesla-model-3-survey/market-evolution.html
4.    https://www.flaticon.com/free-icon/dollar-symbol_189672#
5.    https://www.value.today/world/world-top-500-companies?title=india
6.    https://www.business-standard.com/article/companies/maruti-suzuki-overtakes-hindustan-unilever-in-market-cap-race-117121901062_1.html
7.    https://in.finance.yahoo.com/quote/TM?p=TM&.tsrc=fin-srch    

Oil prices are steady; But Why?

Oil prices jumped 5 percent after Iran launched strikes against US military bases in Iraq in retaliation for the killing of commander Qassem Soleimani. But by Wednesday afternoon gains in crude had reversed, with prices trading lower than before the Iranian general’s assassination.

Having jumped when markets opened to as high as $71.75 a barrel, crude later dropped to below $66 a barrel, a near 9 percent peak-to-trough swing in the course of a day.

So why have oil prices failed to rally despite the tensions in the Middle East?

1.     The crisis is expected to de-escalate. Global cues are meant to calm after Mr. Trump signaled that the US would not respond militarily to Iran’s attacks on American forces in Iraq, in a bid to de-escalate the crisis in the Middle East triggered by his order to kill Iran’s top general, Qassem Soleimani

2.     Saudi Arabia’s state-backed oil tanker giant, Bahri, is temporarily suspending shipments through the Strait of Hormuz following Iranian missile strikes on US military bases in Iraq, according to two sources familiar with the matter.

[ How the Strait of Hormuz is used as leverage and weapon by Iran has been explained in my previous blog Dated: January 3, 2020: India's economy will suffer eventually as the US attacks Iran!!.]

Avoiding the possibility of direct involvement has also made the oil market a bit less fuzzy. 

3.     Russia Crude Oil Production is at a current level of 10.86M, down from 10.90M last month and down from 10.96M one year ago. This is a change of -0.37% from last month and -0.95% from one year ago. The fact remains that Russia has been trimming production for most of the past three years in an attempt to offset a surge in production from the US shale industry. So if the prices get too high, then the POTUS can ask his allies, including Saudi Arabia and the UAE, to boost production to help calm the market and calm down the prices. 

4.     Oil prices are already high: Some traders say the limited price reaction is simply down to oil having already risen strongly in the fourth quarter of last year, with prices gaining about $10 a barrel as concerns over weakening global growth and the US-China trade war receded. Hedge funds already have sizeable bets on rising crude prices, which have largely been established in the past few months, suggesting there may not be the appetite to keep adding more risk to portfolios without evidence of a genuine supply disruption.

5.     Darryl Willis, a 25 year veteran of BP was hired by Google as the VP of Google Cloud Oil, Gas and Energy. And then he shifted to Microsoft as VP Energy Industry. 

His LinkedIn Account: https://www.linkedin.com/in/darryl-willis/

Google has already signed up with Total to subsurface data analysis for oil gas exploration and production. Microsoft has already partnered with Exxon and Chevron. Amazon provides cloud services to BP and Shell. The Big Tech companies are already betting high on the oil industry. The fact remains that Machine learning can help in providing seismic segmentation to label geological structures important for oil exploration. The amount of data already collected by the Oil industry can be fed to train the machine (AI). In 2018, the oil and gas industries spent an estimated $1.75 billion on AI — a sum that is projected to balloon to $4 billion by 2025. The bottom line remains that the oil industry is optimistic about the R&D happening and the involvement of Big Tech into this sector. Any sort of breakthrough would mean significant production output and the prices are not going to storm beyond a particular upper bound. This reason may seem vague but if that’s so, let’s keep the other 4 points in mind to answer the question in the headline itself :p

References: 

1.     https://www.vox.com/recode/2020/1/3/21030688/google-amazon-ai-oil-gas

2.     https://www.ft.com/content/98d9b0a6-322c-11ea-9703-eea0cae3f0de

3.     https://www.ft.com/content/161dbe52-3211-11ea-a329-0bcf87a328f2

4.     https://shashiprakash.in

Unemployment, LFPR and Double Whammy

India's unemployment rate (Urban: 9.3% Jan-March 2019) has been increasing in recent years. And I am sure that you must have come across this article and we will not try to debate on the same. But there is one interesting thing to notice about. 

So the methodology used for the report quoted here is called the "current weekly status" method which gives an average picture of unemployment in a period of 7 days preceding the survey period. A person is considered unemployed in a week if he did not work even for 1 hour during that week. Now the unemployment rate is determined by dividing the number of unemployed people with the people actively seeking a job. LFPR (Labor Force Participation Rate) may be taken as the proxy for the denominator which is the section of the working population in the age group of 16-64 in the economy currently employed or seeking employment.

But the irony is that the LFPR (64% in 2004-05; 49.8% in 2017-18) in itself is decreasing in India which is a grave matter of concern than the unemployment rate itself. Because that would mean that even when a lesser proportion of people are seeking a job, a higher proportion of them are not getting one. 

This is what has been termed as Double Whammy by Mahesh Vyas, CEO of CMIE.

References:

1.  Business Standard TUESDAY, 19 NOVEMBER 2019, Mumbai City Edition 

2.  https://www.google.com/search?client=safari&rls=en&q=urban+unemployment+rate&ie=UTF-8&oe=UTF-8

3.  https://equitablegrowth.org/declining-labor-force-participation-rate-causes-consequences-path-forward/

4.  https://www.youtube.com/watch?v=oIS-PynsP6c

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