Impact of virus crisis on oil prices sharp and temporary

MANAMA: The impact of the coronavirus crisis on oil prices will be sharp and temporary, although accurately estimating it is very difficult due to the crisis complications, and the uncertainty of its course, shows a report by a Bahrain-based think tank.

The analytical report titled ‘Implications of the Corona Crisis: Oil Markets’, authored by Bahrain Centre for Strategic, International and Energy Studies (Derasat) researcher Abdulaziz Al Doseri discusses the course of events that preceded the decline in oil prices, in light of the coronavirus crisis.

According to the author, signs of an economic slowdown have been visible since late last year, confirmed by the pessimistic tone of global oil companies, due to their expectations of reduced dividends to shareholders, such as Shell and British Petroleum.

At the time, tensions from the US-China trade competition were the most prominent headlines moving the markets and predictions for the course of the economy.

The dangers of the coronavirus outbreak for the world economy have brought new variables, making it difficult to predetermine the duration and frequency of outbreak incidents, which reflect on predicting the economic impacts of these incidents that depend on the type of epidemic and adequacy of the measures implemented to contain it, as well as death rates and society’s reactions.

Oil prices were quickly affected due to the 2020 price curve being different than the current one, which factors in a viral outbreak and a shutdown of global economic activities.

Oil traders strive to estimate the severity and extent of impact on global consumption, resulting from the coronavirus outbreak in China, based on evidence from previous corona and flu viral outbreaks.

As with any respiratory epidemic, the greatest impact hits the economy and oil consumption due to containment measures, like quarantine lockdowns and social distancing.

Governments were expected to implement some procedures to deal with public health emergencies, with companies voluntarily following suit, to limit exposure to the virus.

Social distancing measures unsurprisingly had a large negative impact on consumer spending and the private sector, as well as manufacturing, providing services and transport networks, says the report.




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