Global Economic Crisis Unleashed by Coronavirus Covid-19 Pandemic Sends Oil Prices Into Free Fall Collapse
The quarantines and shutdown of economic life precipitated by the Covid-19 pandemic has devastated the global oil industry. This is due to demand destruction occurring in the wake of panic responses to the coronavirus outbreak. Since the beginning of the year, oil prices have plunged from one half to around two thirds from their peak. On March 27, West Texas intermediate fell nearly 5 % from the previous day, to $21.51 per barrel, while Brent Crude was priced at $27.95. Lower grades of crude have plummeted to below $20.00 per barrel.
The collapse in oil prices has accelerated a price war between Saudi Arabia and Russia for market share amid declining demand, further exacerbating downward price pressures.
A global economic crisis that seems increasingly likely to become another great depression spells doom for the oil industry. However, there is one wild card; a war breaking out between Iran and the United States, which economist Nouriel Roubini sees as a high-probability event. This would create a supply shock to complement the demand shock to the global economy that has already occurred, reversing the decline in oil prices and sending them to record highs, at least temporarily before plummeting again. This would unleash a wave of inflation, leading to stagflation: negative growth combined with high inflation. That in turn would further depress economic activity, and impede a recovery in the global economy even after an effective Covid-19 vaccine has become widely available.
