Oil price collapse likely to worsen global economic recession amid COVID-19 pandemic
The recent collapse of oil prices is likely to cause further recession to the global economy that is already suffering deterioration over the ongoing COVID-19 pandemic, said Egyptian political and economic experts.
Affected by the precautionary measures and lockdowns imposed in most countries across the world to face the outbreak of the novel coronavirus, the current oil crisis may lead to dramatic changes in the global economic map, the experts expected.
On Monday, West Texas Intermediate (WTI) crude for May delivery plunged below zero for the first time in history, with a continuously shrinking energy market as a result of a double shock of declining demand and supply amid the spread of COVID-19. WTI contract for May delivery fell 55.9 U.S. dollars, or about 306 percent, to settle at -37.63 dollars a barrel on the New York Mercantile Exchange, a negative finish that means producers would pay buyers to take oil off their storage warehouses.
Ahmed Qandil, head of the Energy Studies Program at Cairo-based Al-Ahram Center for Political and Strategic Studies (ACPSS), attributed the low demand of crude oil to the precautionary measures taken by most states to combat the COVID-19 pandemic. “The decline in oil demand coincided with a pricing war between key oil producers, which all led to a further collapse of oil prices,”
Qandil told Xinhua. He pointed out that the agreement between Saudi Arabia and Russia to reduce oil production after the intervention of U.S. President Donald Trump earlier in April had a small impact on the situation, describing Trump’s move as “too late.”
Qandil noted that the declining global demand from about 30 to 10 million barrels per day created a large gap between supply and demand. “This oil crisis will have profound effects as it would worsen global economic recession as well as deterioration in the budgets of the oil-exporting countries, especially in the Gulf region,” said the ACPSS expert.
He added that the oil price collapse greatly harms U.S. energy corporations and would also undermine Trump’s chances in the upcoming U.S. presidential election.
On Tuesday, the last day for trading in May WTI futures, WTI crude for May delivery traded at -2.58 dollars, which is about 35.05 dollars higher than Monday’s closure but is still in minus. As for June delivery, the price of WTI crude dropped by about 50 percent to stand below 10 dollars per barrel because of weak demand, while global benchmark Brent crude for June delivery plunged about 27 percent to about 18.5 dollars per barrel.
The low demand for oil and the consequent collapse of its price are logical results of the anti-coronavirus lockdown in most parts of the world, with mostly motionless vehicles, suspended flights and halted industries.
According to Egyptian experts, the crisis will not only affect the economies of oil-rich Gulf states, but will also cast its shadow on other countries like Egypt that has millions of expatriates working in the Gulf region and might be laid off and sent back home. Kareem al-Omda, economics professor at the Arab Academy for Science Technology and Maritime Transport, explained that due to the low demand for crude oil, tank farms are full to the brim and oil tankers are stuck at seas with nowhere to offload.
“The unprecedented decline of oil prices worldwide would surely worsen the global economy in general and paralyzes the U.S. economy in particular in the coming period,” said the Egyptian professor.
Omda added that it will have a significant impact on the relative weight of Western states in the global economy, which would open the door for other economies to move forward. “The current situation is expected to lead global economic powers to find a new global economic system that is more efficient and flexible in dealing with the various types of crises like those hitting the world today,” the economics professor told Xinhua.