The collapse of black gold prices in the days of the Coronavirus

The collapse of black gold prices in the days of the Coronavirus

 

In the biggest meltdown of the last 30 years, oil prices have fallen by more than 30%, also dragging global actions into the crisis.

But what happened and why?

 

China is the world's largest oil importer: the country normally consumes around 14 million barrels per day, the equivalent of France, Germany, Italy, Spain, the United Kingdom, Japan and South Korea combined.

 

It is also the country where COVID 19 originated, so when it started to damage the economy, Chinese oil demand declined.

 

In an attempt to stabilize oil prices, OPEC (Organization of Petroleum Exporting Countries) and Russia discussed production cuts.

 

In the past, the Organization, Saudi Arabia and Russia worked together, but no compromises were made at the last meeting and this led to the free fall of prices.

Most analysts agree that Saudi Arabia has just started a fierce oil price war after Russia has rejected production cuts.

 

Moscow's decision not only breaks the previous deal, but is widely understood as an attempt to push US producers out of business.

"Saudi Arabia has lowered prices, signaling that production will increase - says Michael McCarthy, Chief Strategist of CMC Markets - this is seen as an all-out attempt to drive Russian and US competitors out of the oil markets and, of course, this could mean much lower oil prices "

Oil demand is expected to decrease in 2020, as the impact of the new coronavirus is taking place all over the world, affecting the already fragile economies.

"We have the ideal cocktail for a stock market crisis - says Christophe Dembik, head of research at Saxo Bank - an economic impact linked to a pathogenic shock represented by the coronavirus, which can use economies to go into recession, particularly in the area EUR".

A sharp drop in tourism, supply disruptions, weak demand and a decline in consumer confidence: all this has forced the economists of the Organization for Economic Cooperation and Development (OECD) to review the growth forecasts for 2020 to just 2.4% - lower than any other year pervaded by the financial crisis.

 

And this notwithstanding, governments are intervening with stimulus measures, without which economies would be even more in difficulty.