The drop in oil prices is likely to be short-lived, veteran stock broker Peter Schiff told RT, since the deflation of the whole US debt bubble and crash of the dollar will make the prices of oil and other commodities bounce up.
Decline in demand for oil due to the coronavirus epidemic, further reinforced by the demise of the OPEC+ production cuts agreement, has crashed the US and world markets, sending traders into a panic-selling mode. The ongoing market turmoil will certainly hit the oil industry heavily, but the impact is likely to reach far beyond it, CEO and chief global strategist at Euro Pacific Capital Peter Schiff believes.
“A lot of the heavily indebted energy companies are clearly going to go bankrupt and so, ultimately, those that survive will be in a position to make even more money as the price of oil re-bounce, which I do expect to happen,” Schiff told RT, adding that well capitalized oil companies will survive the crisis and ultimately benefit from it, once the prices start to pick up.
US shale industry is bound to crash
The US shale oil industry is likely to be hit the worst, given its extremely high costs of production and maintenance.
“Really, 50-60 dollars a barrel is kind of a minimum for a lot of these guys to survive. We didn’t even have that before and now we are in the low 30s, so this is going to cause a lot of devastation,” Schiff said.
Falling oil prices may make gas at the pump cheaper in the short term, but consumers should not get too excited about it, since the upcoming economic recession will swiftly negate this effect, he warned.
“People will get the benefit of having some cheaper gas prices, but don’t get used to it as it won’t last. People shouldn’t go out and buy a big SUV because they think the gasoline prices will stay down forever.”
A lot of Americans maybe think it’s good that they not going to pay as much for gas – but a lot of them are about to lose their jobs, so they will not going to need to drive to work anyway. So, the savings won’t be as big.
Dollar debt bubble is bursting
On the larger scale, plummeting oil prices are “part of the deflationary process” affecting the whole US dollar bubble, Schiff believes. Enormous amounts of debt have piled up across every sector of the US economy.
“The real problem in the US economy is all the debt. We have so much debt, not just in oil companies but in all sorts of companies and everybody is missing this,” Schiff said.
Unlike during the 2008 financial crisis, the US is unlikely to be able to re-inflate the dollar, as it simply doesn’t “have enough bullets in their gun to reflate a larger bubble” and now is bound to “deal with a full aftermath of this coming crisis.”
“In 2008 the dollar went up because everybody was buying it. This time, the dollar is going to tank, because everybody is selling it,” Schiff told RT. “And this commodity bear market, including what’s happening in oil, is going to be very short-lived. Because once the dollar starts to collapse, all these prices are going to rise including the price of oil.”
The US government might try to bail out its oil industry, since its collapse might trigger a chain reaction that could force Washington to rush and save other sectors of its economy as well.
“I’m wondering if the US government is going to try and bail out the oil industry. I hope they don’t, but they may. They may bail out a lot of other industries too, like they bailed out the banks in 2008,” Schiff said. “But they may have to bail out the banks again – if you look at the banks today, all the banks that they claimed are too big to fail in 2008 are a lot bigger now, and I think they will all going to fail again.”