Impact of Covid 19 on Crude Oil Prices

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At present, lock down prevails in most part of the world.As soon as lock down ends,financial markets will start afresh. Crude oil prices for the first time in history becomes US $0 per barrel. The price of WTI (West Texas Intermediate) crude futures contract of May expiry were negative US$39 per barrel on the New York Mercantile Exchange on April 20, 2020. Brent crude oil prices too followed the same track. There  were large production cut by the OPEC+ countries.But unfortunately, there stiff action does not increase the crude oil prices.

 

Following are the reasons for free fall in crude oil prices:

 

1. There is very little demand of crude oil all over the world and the supply of crude oil is very high. Moreover, there is economic uncertainty and hence there is a free fall in domestic and external demand of crude oil.

 

2. Global trade, both export and import, reduces to a great extent. Consequently, there is a fall in production.

 

3. Even OPEC+ nations, particularly Russia, have not agreed to cut production of crude oil. This also increases the supply of crude in world market as well.

 

Impact on world economy

 

The global economy will fall into slow down. As most of the nations storage capacity is full, nations are less likely to purchase crude from OPEC+ nations which in turn will decrease the price of crude further and remain stayed for longer period of time.

 

Future of oil markets scenario

 

There is a prediction from United States Energy Information Administration that from July to September 2020, the average crude oil price will be at least $24 US per barrel. From September 2020 on wards, it will definitely increase to $30 US per barrel. Hence the average price for the year 2020 will be $33 US per barrel. For the year 2021, there will be a rise in the price to at least $46US per barrel.United States Energy Information Administration further predicts that by the end of 2025, the crude oil price will hover around $80 US per barrel.Global demand for crude will also rise. People all over the world will search for some other alternative owing to the fact that there is a probability that crude oil will not left behind globally by 2050 and moreover, the market price will be very high, still not affordable by many poor nations.

 

 


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