2020 has started well for the global economy until the rapid spread of the coronavirus dented it significantly. So far in 2020, the oil demand has dropped by around 30% and it may stay weak in 2021 according to Goldman Sachs analysts. 2021 may become gloomy if the second COVID-19 wave happens.
Currently, the world seems to be on road to recovery from the health crisis and the damage caused by the global economy is considerably large. Nonetheless, the US experts are warning of a probable second coronavirus infection wave. Following these worries, the oil market is down.
Oil prices have plunged, as concerns over the coronavirus pandemic and its economic effect have resulted in the cancellation of support from supply cuts at the world’s leading producers.
Global Oil Production is Dwindling
In the past two weeks, major oil benchmarks, West Texas Intermediate crude and Brent crude futures have been in the green. The demand for fuel has significantly rebounded. That has happened mainly due to the smoothing over quarantine measures and the resumption to normalcy.
But, signs of a possible second health crisis wave have worried investors. Oil production is constantly declining and on May 11 the oil prices are down. Brent crude futures are now 1.07% or 85 cents down, at $29.87 a barrel. In that context, the U.S. West Texas Intermediate (WTI) crude futures have dropped by 3.68% or 89 cents today to $23.83 a barrel.
At the moment, the uncertainties in the market seem to be affecting the prices of commodities. OCBC economist Howie Lee in Singapore commented:
“That’s a cause for concern as the last thing people want is for lockdowns to happen again across multiple cities, but I think authorities should be much more prepared right now to cope with a second wave. Overall, the risk environment looks quite conducive for further upside.”
Fears have also developed as reports suggest that the United States might be running out of storage space. A senior risk manager at Mitsubishi Corp in Tokyo, Tony Nunan, stated:
“People are surprised by how quickly the U.S. is shutting in production and that’s exactly what we need to support prices. There’s another 10 days before the June contract expires … if the WTI contract can avoid a crash going into expiry, hopefully, we’ve seen the bottom.”
Is A Second COVID-19 Wave Coming?
On May 11, the number of confirmed coronavirus cases in the United States stands at almost 1.4M which is the biggest number in the world. 256,336 people have recovered, 80,787 deaths have been reported.
Americans are slowly getting back to their normal lives. Businesses are reopening as people are now spending more time outside. But, some think that the cancellation of the lockdown is too soon.
Moody’s Analytics expert, Mark Zandi, is convinced that fast reopening may lead to total unpreparedness if a second infection wave arises. In that case, the economy will languish in depression. Zandi added:
“If we get a second wave, it will be a depression. We may not shut down again, but certainly, it will scare people and spook people and weigh on the economy.”
The director of the National Institute of Allergy and Infectious Diseases, Dr. Anthony Fauci, also has a similar opinion:
“In my mind, it’s inevitable that we’ll have a return of the virus … when it does, how we handle it will determine our fate.”
Analysts in Europe also have the same fears. The second wave might prove more dangerous until we have the vaccine.