The coronavirus pandemic has brought the world to its knees, import, export shut down, and a devastating blow to many country’s economies. Social distancing is the only way to prevent the transmission of COVID-19. Hence markets have been shut down, and business is slow.
Self-isolation and lockdowns have been implemented throughout the world by leaders in over 100 countries (source). Most of the crude oil extracted from the ground goes into the production of gas and petrol, which are used as fuel for vehicles. Since the implementation of total or partial lockdown in cities around the world, there is a considerable decline in vehicle usage and hence oil consumption.
When there is less demand, the supply of oil is directly affected. Oil is being extracted every second, and when there are no buyers, companies, and refineries have to pay people to use oil as extracting equipment cannot shut down.
On 20th April, after oil companies ran out of space to store the excess abundance of crude oil left behind by the coronavirus crisis, the US oil prices turned negative for the first time.
In only a few hours, the price of American crude oil hit from 18 dollars a barrel of crude oil to negative 38 dollars, as rising stocks of crude oil challenged overwhelming storage facilities.
The market crash underlined the impact of the coronavirus outbreak on oil demand as the global economy slumps.
On 21st April, rates soared beyond zero, and after closing at -$37.63 in New York on Monday, the US average in West Texas Intermediate changed hands at $1.10 a Barrel for May.
The accelerated fall in the sector over recent weeks had a fever pitch as markets hit the last day to sell oil until contracts ended in May. The deadline sparked a market crash when distressed oil dealers were pressured to take action with more fuel than storage capacity.
In the last weeks, after the most significant decline in demand for oil in the last 25 years, oil production from the United States’ shale heartlands has slowly dropped as a result of transport sanctions to limit the spread of COVID-19. The decline has worsened with the expectations growing. The global economy hasn’t been like this since the Great Depression. Some people are taking advantage of this, and aside from buying high quantities of oil at low prices, they are also speculating on market trends by trading on eToro oil contracts.
Oil companies have kept exporting crude oil to the world market at a near-record pace even though experts cautioned that since 1995, the effects of the epidemic of coronavirus would push the price for oil to its lowest. Some petroleum firms are forced to hasten the shutdown of their platforms and petroleum wells to prevent deeper bankruptcy or debt.
The longer the pandemic of COVID-19 lasts, the greater the harm is done to oil production. How high oil prices will rise until the epidemics subside is now impossible to predict. It is going to increase, but not for long. The usage of coal and other fossil resources is no longer as it was before because the coronavirus pandemic has flipped the global economy upside down.