The impact of the COVID-19 on global oil prices

During a meeting at the Organisation of the Petroleum Exporting Countries (OPEC) in Vienna on March 6th, a refusal by Russia to slash oil production triggered Saudi Arabia to retaliate with extraordinary discounts to buyers and a threat to pump more crude. Saudi, regarded as the de facto leader of OPEC, heightened its provision of oil by a quarter more than February – taking production volume to an unprecedented level. This caused the steepest one-day price crash seen in nearly 30 years – On March 23rd, Brent Crude dropped by 24% to $34/barrel to stand at $25.70. Although a slowdown in the number of COVID-19 related deaths has caused some stabilisation of oil prices, there is still much uncertainty.On the background of a viral outbreak already dampening the demand for oil, this oil-price waris predicted to have grave implications for the global economy. In more ordinary times, cheap oil may have functioned as an advantage for economies. However, savings on petrol are unlikely to be redirected into more spending as populations are instructed to practise social distancing and the working class are uncertain about job security. Furthermore, any increase to consumer activity is likely to be outweighed by damage caused to populations reliant on revenue from other forms of energy such as Shale gas. Economic modelling from Imperial College’s Centre for Climate Finance and Investment has suggested ‘Carbon Dividends’. A £50/tonne of CO2 tax could be channeled into UK households in order tostimulate consumer spending whilst keeping oil prices at the same level as February 2020. However, this relies on turbulence between Saudi Arabia and Russia thus should not beconsidered sustainable for the long-term

Keywords:

COVID-19 , fossil fuel economy , oil and gas