Coronavirus : Which effects on the Oil market ?
The World Health Organization (WHO) has reported a global health emergency due to emergence of a new virus called coronavirus, which is officially named as COVID-19 and which has killed more than 13 000 people worldwide. The virus paralyses not only the Chinese economy but has a worldwide ripple effect. What potential effects may the epidemic have on the international economy? There is at least one sector which started facing the consequences from the very beginning: “Oil Market “.
[Updated on 9th, March, 2020] At the same time that the American oil companies had already tightened their budgets because of debts, here comes the latest shock to word energy market : Since the beginning of COVID-19, oil prices have decreased, falling from 70 dollars/Barrel in early January to 50 Dollars/Barrel in early March.
On Monday, March 9th, 2020 or the day named Black Monday/ Oil Crash, oil prices fell sharply their worst session since 1991 during the Gulf War, dropping by about 25% to 33,90 dollars in New York as in London after the failed discussions between the two OPEP leaders, Saudi Arabia and Russia. Thereby, market observers agree that this dropout does not seem to stop, and the price could reach its historically low level below 30$ of 2016 by the coming weeks.
Source : Prixdubaril.com
Russia, the world’s second biggest oil producer, opposed to a new reduction of 1,5 million barrels per day. This opposition has pushed Saudi Arabia to unilaterally lower its delivery prices, making the highest reduction in awards for 20 years.
In the other hand, just after the outbreak of the coronavirus, China’s oil demand is already down by 20 percent because of the deletion of flights to China, decrease in road transportation and manufacturing activities. Since China is a big consumer of oil (13 of every 100 barrels of oil the world produces is consumed in by China), all oil producers are being affected to some matter. Also, in France 900 companies (15 000 employees) are partially unemployed.
Yury Sentyurin, secretary-general of the Gas Exporting Countries Forum, said: “This is a force majeure situation. Any contract between sellers and buyers have a special clause … called force majeure, for some events and situations which are out of the influence of participants of the parties of the contracts”.
Sentyurin notified that there may be some suspensions and some retards in contracts and said : “I think this is a temporary situation because fortunately life hasn’t stopped and people will continue living, will continue producing, will continue consuming and everything will continue, from my point of view.”
Key words: Coronavirus, Oil, barrel, China, OPEC, COVID-19, Oil prices.