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-Ms. Dyuti Vij
Oil is an essential commodity and is an indispensable source of energy worldwide. Besides catering to the energy requirements pertaining to transportation, fuel, industrial power, heating, and lighting, its by-products, in myriad of forms, are utilized for production purposes, lubricants, paints, cosmetics, etc.
For the longest time, the demand for oil has been prodigiously high as it is a necessity for industrialised as well as developing or less developed economies. Thus, the Oil Market has a substantial bearing on the world economy. Nonetheless, the Oil Market and prices fluctuate in response to demand and supply situation on a dynamic basis, which is majorly dependent on the energy requirements, industrial production, policies, and any sort of crisis (including political instability) in different countries.
The world-wide new Coronavirus pandemic, Covid-19 has massively unsettled the entire Oil Market globally. It is not only a health hazard for the world human population, but is also a subsisting hazard for the world economy. The activities related to Oil, coupled with Gas, are classified as essential activities and have majorly been exempted from the lockdown in most parts of the world, yet the oil consumption has suddenly plummeted worldwide which in turn, led to the downfall of the world economy. The Covid Lockdown has been enforced to protect the world population, however, due to the lockdown the Oil Market has taken a big hit. This lockdown is undeniably one of the darkest times for the global Oil Market and Industries and is acting as a global barricade for the consumption of oil, leading to huge imbalance in the supply and demand of oil. In the present scenario, the supply of oil has left the demand of oil way behind. The sudden and constant downfall in the demand of oil has prompted the global oil price to fall steeply. Unfortunately, the price of oil has reduced drastically by more than half the price during the past month and has sunk to its lowest level in approximately 18 years. Presently, there is a drastic difference in the supply and demand of oil as majorly there is a swift decline in the goods production, transportation and various other activities which require oil or petroleum-based products. This worldwide pandemic has wrought the worst in the world economy. The benchmark West Texas Intermediate (WTI) crude oil price reached a low of $22.39 per barrel in the intraday session on March 20, 2020 – less than half the price at the beginning of the month.
Many of the oil rigs which were producing approximately more than a million barrels per day are forced to shut down due to the blistering paced decline in demand for oil. The global market value of oil companies has deteriorated and now, are struggling to survive the attack on them. Many of the oil companies had to cut their production immensely or close their operations. The spread of Covid-19 and the mitigation measures being undertaken to fight against Covid-19 have caused an oil demand slump and have forced the Oil Market to succumb to an unprecedented jolt. The lingering effect of the pandemic has resulted in a massive global drop in the demand of oil and price of oil and, hence, has driven the Oil Market into a survival mode.
Presently, after USA and China, India is the world’s third-largest oil and energy consumer. Hence, the lockdown in India due to Covid-19 pandemic has brought the oil consumption to a standstill. Transportation accounts for a huge segment of the demand of oil, and since that has been stopped (except for transportation of required for essential services), the oil demand has subdued.
The worldwide tumbling of Oil Markets began with the pandemic of Coronavirus in China which impacted its gigantic economy and led to a global slash in the oil prices, thus, giving a rise to the oil demand and price slump. This oil slump took a toll on the nations and has toppled the Oil Market. This was the beginning of an unfortunate worldwide upending of the Oil Market and the decline of economic growth.
In a desperate attempt to save the Oil Market from crashing, a summit was held in Vienna on 5th March 2020, to arrive at a solution. Little did anyone know that this summit would add to the turmoil faced by the Oil Market. The result of this summit was that the Oil Market was stuck between the downfall in demand and price of oil and the price war triggered between the vital global producers, Russia and Saudi Arabia which brought the Oil Market and industry to its knees.
The feud between Saudi Arabia and Russia commenced when, during the summit in Vienna, the OPEC (Organization of the Petroleum Exporting Countries) proposed to reduce the oil production by an additional 1.5 million barrels per day for the rest of the year. However, on 6th March 2020, Russia, a non-OPEC member outrightly rejected the proposition. Saudi Arabia retaliated by declaring that it was going to provide discounts of approximately 20% in the key markets which further led to the downfall in oil prices by 30%. Additionally, Saudi Arabia even declared that it would increase its crude oil production to 12.3 million and even Russia planned to increase oil production by 2,00,0000-300,000 barrels per day in the short term and 5,00,000 barrels per day in the long run. The Oil Price War ended with the cooperation of the non-OPEC countries including Russia, also known as OPEC+ who declared that they will also lessen the production of oil barrels by 9.7 million per day.
This collaboration marked an end to the oil price war between Russia and Saudi Arabia which exacerbated the impact of the Covid-19 outbreak on the Oil Market. Even though, the price war has ended, the global Oil Market is still in chaos and uncertainty and may take long to revive, aligning with the ‘new normal’ in the wake of Covid-19 crisis which, does not seem to be abating yet.
