The Oil Collapse: A Pandemic and a Price War Have Together Brought Energy Markets to a Crisis

by Maryam Khan

Author: Daniel Yergin

Organization/Publisher: Foreign Affairs

Date/Place: April 2, 2020/USA

Type of Literature: Report

Word Count: 2226

Link: https://www.foreignaffairs.com/articles/2020-04-02/oil-collapse

Keywords: Oil crisis, Covid-19, OPEC, Financial Markets

 

Brief:

Oil prices have dropped since the beginning of 2020, in part due to slow global growth and the shale energy revolution in the US. The last price collapse began in 2014 and lasted until 2016 when a mitigation policy was put in place by the OPEC members and key oil producers like Russia, called the OPEX+ or Vienna Alliance. The COVID-19 crisis has disrupted China’s economic activity, impacting the global supply chain with the demand sinking for transportation fuel. Additionally, the 2016 OPEC+ policy to curb production has fallen apart leaving an excess of oil supply in the market. Such turmoil within the economy has been exacerbated by the pandemic we now face. Global consumption decreased to a record level in April 2020 alone. The oil crash is assumed to be overshadowed by turmoil not only for oil-exporting countries, but also within global financial markets. The United States is frantically trying to ameliorate the crisis as seen by President Trump calling on Russian President Vladimir Putin and Saudi Crown Prince Salman for the reconvention of OPEC. The author argues that as the Chinese emerge out of their disease-ridden rut, the resumption of Chinese industries will renew the demand for oil. The imbalance caused by the oil crash will meanwhile change the global oil order. With the world economies at a standstill, the author foresees a shift in geopolitics which he proclaims to be an “era of fractious global politics.”

 

By: Maryam Khan, CIGA Research Associate

You may also like