With much of the world shut down due to coronavirus, the consequences for commodities have been dramatic.
Demand for oil has plummeted, with uncertainty over production levels among major producers compounding the problem, according to the World Bank. This year, the IEA expects it to fall by 9.3 million barrels per day (9.3%), from the 2019 level of 100 million a day. That’s equivalent to losing the entire consumption of India and Africa, according to Bloomberg.
The early eighties is the only time in recent history that we have come anywhere close to experiencing something like this. Even then, demand fell by just over 4% in 1980, just over 3% in 1981 and 2.69% in 1982.
In 2008, the Great Recession led to demand falling by 0.66%.
So it’s clear this crisis is unique. And it’s had a huge impact on oil prices. In April, they reached a historic low, says the World Bank, with prices for the US benchmark falling below zero on 20 April – as far as minus $37.63 a barrel. Producers were paying to have their oil taken away rather than store it.
This drop was partly because oil is traded on its future price, and with the expiration date for May contracts approaching, investors didn’t want to take delivery of the oil and incur storage costs. June contracts are trading at about $20 a barrel.
The Organisation of the Petroleum Exporting Countries (OPEC) and other oil producers have agreed to cut production levels by more than 20% in May and June to ease some of the pressure on oil markets.
And the situation is expected to ease in the second half of 2020, with global demand down by about 5 million barrels a day compared with the same period last year, the IEA and OPEC predict.