There was a yo-yo in the oil prices when tensions escalated between the US and Iran. But the COVID-19 pandemic just burst the bubble as several world economies came standing still. We could witness that oil prices fall in a heap, and even the oil futures are selling at below $0. It is the first time such a drop of price has been seen, which has left the traders no choice but to keep away from taking the delivery of physical crude. This unprecedented happening fall of oil prices this low has wiped out all May contracts value.
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Supply Glut in the Oil Markets is to Blame
The US storage hub for crude is finding it challenging to store more fuel, which is already 72% full. It is because the investors are jittery on clearing them from the books and raising the inventory. Though the May futures have crashed, the June futures show hope and are selling at $20/barrel. The supply glut in the oil markets is making the sellers pay the buyers. The US government is yet to impose the production cuts and go for natural attrition in this case. They are waiting for the pace of the production to fall enough to stem the collapse in price.
Coronavirus Pandemic is hitting hard on Economies
The pandemic has hit the oil for a full toss as people are either working from home or lost their jobs. The traders had to unwind long positions that they took to delay the delivery, which now has led to substantially long liquidation. When the US crude prices dipped, the volatility index and India VIX surged 5%.
All stocks were slipping on Wall Street, but you could see the most dramatic turn of events for the oil was the benchmark for the crude to a negative $37 a barrel. The only other reference for this was the contrast of having the highest price of $148/barrel in the US crude market. Speculation showed that it was because of the oversupply of the oil. When the industrial and economic activities have come to a grinding halt and consumption has decreased across the globe, causing the oil prices to dip further. The shutdown has impacted the fall of crude, and the surplus in the US market has hit the prices below $0.
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The beginning of the year wasn’t favorable to the oil prices, and they have plunged further as the days led to the pandemic outbreak, which shook the entire world. Governments strived to save lives before they handled the impact on economies. Though the UN has predicted that there will be a definite slump and set back for most developing economies, especially after funding from the world bodies and economic aid, that gets flushed into the economic revival programs of several nations, you will find that countries will be under tremendous pressure to revive the state of their economies at a faster pace.
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They would have to deal with an increase in unemployment rates, a drop in growth rates, and various other struggles that would put the country back by several years to regain its spot. Specific policies could be worked out with all the policymakers if they work together for a solution. Though, the wait and watch and the cautious attitude have made them take things slow and allow the pandemic to phase out and focus on the human apathy and get people through this ordeal.
All countries will tread cautiously even when the pandemic is past them. There is the fear of the second phase of the outbreak until the vaccines get made probably within that time-period work and help stop it. Countries will still be fearful of going full throttle into economic activities. There will be a wait and watch and a slow return to the humdrum of affairs.
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