Since January 2020, the spread of the Coronavirus has sent shockwaves to global stock markets, which has seen them tumble - and has reversed nearly all of the positive momentum that we’d seen in oil prices over the previous four months. As the virus spread out beyond Asia, the oil market continued to suffer significant losses; but the question we’re all asking: how deep and how long is this going to continue?
The Coronavirus has an affect on the oil market in two specific ways. Firstly, the travel restrictions in place by numerous governments around the world in order to contain the spread of the virus, limit the use of jet fuel, so the supply chains slow down, industrial activity gradually comes to a halt - this means that less oil and oil-based products are being used and produced. This has a direct effect on overall oil consumption and goes on to inform near-term calculations of real oil demand. Secondly, the stock market reaction to the effect that the Coronavirus is having on the global economy builds up a projection of the global oil demand over the long-term basis.
At the beginning of the pandemic, the early expectations of the impact of the Coronavirus on oil demand would see a primary reduction in Chinese oil demand and that the price of oil would be significantly lowered in line with the rapid decline in demand.
With this virus proving to be so difficult to contain and treat effectively, the shape of the predicted recovery curve is immensely difficult to judge. People are making comparisons between the Coronavirus and the 2003 SARS virus - where oil production bounced back within the next quarter. Signs of recovery from the virus in China might be able to place a floor under the oil prices and can improve the long-term economic outlook. However, unlike in 2003, China is dramatically more connected to international markets so the recovery period could be extended further.
If we consider the week of February 21st, the oil market was exposed to extremely sensitive prices when it comes to the demand portion of the market. There is still hope for the possibility of a major supply correction remaining on the cards, which leads to a longer-term correction to the oil price collapse.
For some people, the lower oil prices have seen a rise in bulk-buying. Oil distributors Shropshire has been supplying local businesses and homes with oil during the outbreak.