2020 in general might go down as one of the worst years this century. People expected this year to be special, in a good way, but it is just the opposite. The first week into the year and all the good expectations were crushed. Bushfire in New South Wales, Australia has affected more than 12 million acres. Beloved koalas and kangaroos were hurt and killed, along with the people who tried to save them (BBC). Then on January 7th, The Chinese branch of The WHO (World Health Organization) was officially notified of 2019-nCoV, which is now known as Coronavirus or COVID-19. The unpleasant news did not stop here. One day after the latter fact, Iran launched Operation Martyr Soleimani, which ignited World War 3 fear across the globe. Also, at the end of the month, the tragic helicopter crash was announced, which took the lives of one of the most iconic sportsmen, Kobe Bryant, his daughter Gigi and 7 others (Insider). Coronavirus was officially announced as pandemic and it has killed more than 280 000 people (Worldometer). This list goes on and on, but the main topic of discussion is what the effects of Coronavirus are, how has it influenced the world and economy, and what the future looks like after the pandemic.
The coronavirus outbreak has reached every single country in the world. Its growth has left companies and businesses counting costs and losses on a global scale. Banks are slashing interest rates, which makes borrowing easier and cheaper, it also encourages spending to magnify the economy. Global markets got back on feet after the US Senate passed a $2 trillion aid bill to help companies, businesses and workers. All of this sounds good, but things are not as well as they seem. During the last two months, more than 30 million people have filed for unemployment benefits, which is a record high for the US. The number is very high compared to the weekly average of 350 000. In the UK, nearly 1 million people filed for these benefits, in just two weeks, which is about 850% more than the expected number of claimers (BBC).
Another huge problem caused by the pandemic is the price of oil. According to Brent crude benchmark, which is used across Europe and the rest of the world, the price of oil per barrel dipped below $20 for the first time in over 20 years. As for the United States, the price of a barrel of West Texas Intermediate (WTI) turned negative for the first time in history. This means oil producers are paying buyers to take the commodity off their hands over fears that storage capacity could run out in May (BBC). To solve this problem, OPEC (The Organization of the Petroleum Exporting Countries) and non-OPEC Ministerial Meeting was held. They concluded, that they should decrease oil production by 9.7 million barrels a day, which is roughly 10% of the whole (From May 1st until June 30th). According to the agreement, from July 1st to 31st December production will reduce by 7.7mb/d and from January 2021 until April 2022 it will drop to 5.8mb/d (OPEC). Despite the consensus, prices keep falling down. There are four main reasons for that:
1. A decrease by 9.7mb/d is not enough. According to some experts, in addition to the coronavirus outbreak, a conflict between Russia and Saudi Arabia did a huge damage to the oil price, and this agreement should have been reached earlier. Tweet of Donald Trump is noteworthy in this case: “Having been involved in the negotiations, to put it mildly, the number that OPEC+ is looking to cut is 20 Million Barrels a day, not the 10 Million that is generally being reported. If anything near this happens, and the World gets back to business from the Covid 19…..” (Trump).
2. Because of the pandemic, all of the major economies have halted, which drastically decreased demand for oil. So, until there is a deficit on the market, the price of oil will be dropping. For example, planes of the Lufthansa Group require about 230 000 barrels of oil. Because of the current situation, the number of flights has been decreased by 80%, naturally, so has the demand for oil.
3. Despite OPEC and non-OPEC members have reached an agreement, there is a high probability of oil being sold on the black market, which is uncontrollable. This fact also leads to a decrease in price.
4. A decrease in oil price, may be connected to the political play of the USA. Their main opponent is Russia. The main difference between the two economies is that, Russia is completely dependent on oil, unlike the diverse economy of the US. Despite Donald Trump’s public statement, the states may be decreasing the price of oil artificially, to weaken the opponent.