During the past months, there has been a crisis never seen before in oil prices. It’s not a secret that “black gold” moves the world and gives solvency to a large number of countries around the globe. Therefore, when it suffers, it creates a chain reaction towards other facets of the economy.
Many countries have been expecting a gradual slowdown in the oil’s demand due to the economy’s evolution and other energy alternatives. However, the outbreak caused by COVID-19 not only created such a major decline but also a historic crisis in the oil industry, according to Dinero.com*.
One of the biggest consequences of the drop in demand is the storage crisis, where the extracting companies have been obligated to store the oil which is not commercialized in tankers and oil ships. Therefore, they need to cover these costs, since it is often worse to stop producing. Given this, many companies that do not have the financial solvency are forced to close, according to Bloomberg**.
According to BBC***, in mid-April, the West Texas Intermediate (WTI), which acts as a benchmark for the US fell to $-37.63 per barrel, a disastrous figure. ABC economía**** reported that at the end of April, the prices for the WTI shot up 22% to $15.06 per barrel, and the Brent crude that serves as a benchmark for Europe increased by 11% climbing to $22,7. This happens due to the announced and progressive reactivation of the world’s economy, which will consequently increase the demand for oil.
Nevertheless, the IMF predicted that the global economy will shrink by 3% in 2020, which will slow down the rate of recovery for this industry, as reported by CNBC*****. In conclusion, the current outlook for this commodity is not very encouraging and the only word to describe it is “volatile”. What happens in the coming months remains to be seen, however, not a lot of signs show an anticipated improvement for this sector.
Bloomberg – The Next Chapter of the Oil Crisis: The Industry Shuts Down
Blas, J., 2020. Bloomberg – The Next Chapter of the Oil Crisis: The Industry Shuts Down. [online] Bloomberg.com. Available at: <https://www.bloomberg.com/news/articles/2020-04-26/the-next-chapter-of-the-oil-crisis-the-industry-shuts-down?sref=2PjcujC8> [Accessed 4 May 2020].
GONZÁLEZ NAVARRO, J.****
Los precios del petróleo se desbocan con subidas de hasta el 35%
(González Navarro, 2020)
González Navarro, J., 2020. Los Precios Del Petróleo Se Desbocan Con Subidas De Hasta El 35%. [online] abc. Available at: <https://www.abc.es/economia/abci-precios-petroleo-desbocan-subidas-hasta-35-por-ciento-202004292125_noticia.html?ref=https%3A%2F%2Fwww.google.com%2F> [Accessed 4 May 2020].
MEREDITH, S. AND STEVENS, P.*****
Oil drops 3% in volatile session as storage capacity fears and weak demand weigh
(Meredith and Stevens, 2020)
Meredith, S. and Stevens, P., 2020. Oil Drops 3% In Volatile Session As Storage Capacity Fears And Weak Demand Weigh. [online] CNBC. Available at: <https://www.cnbc.com/2020/04/27/oil-news-wti-crude-brent-prices-today.html> [Accessed 4 May 2020].
PETRÓLEO BAJO CERO *
(Petróleo bajo cero, 2020)
Petróleo bajo cero. 2020. Petróleo Bajo Cero. [online] Available at: <https://www.dinero.com/economia/articulo/petroleo-bajo-cero/284815> [Accessed 4 May 2020].
WALKER, A. ***
US oil prices turn negative as demand dries up
Walker, A., 2020. US Oil Prices Turn Negative As Demand Dries Up. [online] BBC News. Available at: <https://www.bbc.com/news/business-52350082> [Accessed 4 May 2020].