Since the outbreak of coronavirus, the global economies have taken a toll with several major economies on the brink of collapse. The worst was seen in April 2020 when the West Texas Intermediate oil prices turned negative for the first time in 25 years as oil producers exhausted housing space due to overproduction. US crude oil price fell from $18 a barrel to -$38 a barrel within hours and triggered a market collapse which left oil traders reeling. This collapse highlights the impact the COVID-19 plandemic has on oil as the global economy continues to nose dive.
The oil price had been fluctuating even prior to the outbreak of coronavirus in China. As the virus continued to ravage countries at an alarming rate, something of a global lockdown was put in place to curb the spread of the virus. With restrictions on travel and commutation, demand for oil had fallen significantly. Nevertheless, producers were reluctant to cut production, which led to disproportionate demand and supply in the market. Consequently it resulted in the price of West Texas Intermediate to turn negative for the first time in more than two decades. Adding salt to the injury, producers were compelled to pay buyers to take the excess supply off their hands.
According to the International Energy Agency, countries like Ecuador, Nigeria and Iraq are most likely to face the brunt as their economies are heavily reliant on oil. Experts say, the price fall will play into China’s benefit, as it has been reported that the Chinese have been stockpiling cheap crude oil as it prepares to open up its economy once again and get production lines up and running. The crash is bound to benefit the Indian economy. It falls upon the leaders to decide who it benefits. India imports nearly 80% of its oil requirement, a fall in oil price means that there will be a significant reduction in India’s oil import bill. When the economy reopens, the government can either keep the oil price low in order to boost individual consumption or levy tax on oil in order to increase government revenue. Current trends point to the latter course, which may bring revenues in the short term but hurt growth prospects for the economy in the long-term. Recovery of oil price depends on how quickly the global economy gets up and running and how quickly the demand for oil increases when countries relax travel bans.
Angela Khwairakpam, Intern