Oil Hits $20 as Demand Continues to Fall

Over the weekend, the price of Crude Oil hit its lowest in 20 years, with the commodity now trading as low as $20. This low per single barrel comes as the spread of the Coronavirus continues to worsen globally, especially in the United States. The US is currently responsible for close to 18% of the world’s production of Crude, at around 18 million barrels per day. From leading the way in Oil production, the US now also leads the world with over 120,000 reported cases of C-19. So what does this mean?

Essentially it means as the daily demand for Oil in the states will dramatically suffer. The country, prior to this recent drop, had already closed its borders to several countries the world over. The likes of the UK and all European countries. This meant that the travel sector, in particular aviation would as a result face a huge shortage of demand for flights across the Atlantic, and as a result the need for the energy would decrease. In this scenario we are only looking at one specific example of the decline in the usage and demand of Oil. 

The use of Oil in flights from Europe into America. However when you look at the overall picture, you tend to get a better image of the magnitude of what is taking place.

 

What industries are suffering the most?

Although the aviation industry is a large consumer of Oil, it only accounts for 7% of demand by sector. According to a 2017 report by the OECD. Travel or work via Road currently accounts for half of the demand. However with the Coronavirus causing nations around the globe to lock down daily life, essentially restricting all movement, means the need for fuel will also be impacted. 

So currently with a quarter of the world’s population in lock down, around 500 billion people have been told to stay indoors, only leaving for food, or exercise. This means cars, vans and even delivery trucks, except in key industries will be off the road. As a result of this, and depending how long the lock downs last, we may see Oil prices continue to fall.

OECD

As seen on the above chart most of the Oil demand is made up of travel related industries, whether by Road, Rail or Air. With some experts warning that lock downs could last as much as 6 months, these industries are likely to receive significant help from the respective governments in their local jurisdictions. Today Easyjet have announced they will be joining the likes of Ryanair in grounding all of their fleet, which may mean a huge loss of jobs.  Those especially in areas of the business that are heavily linked to in-flight experience such as the cabin crew, or boarding team will be hit the hardest, as there are simply no flights to be checked in for, and no passengers to assist until the crisis is averted.

Countries in Lock down (Full or Partial)

  • South Africa
  • New Zealand
  • Saudi Arabia
  • Colombia
  • India
  • The UK
  • Australia
  • China
  • Jordan
  • Argentina
  • Israel
  • Belgium
  • France
  • Spain
  • Italy
  • Kuwait
  • Ireland
  • Norway
  • Denmark
  • El Salvador
  • Indonesia
  • Germany
  • Portugal
  • Czech Republic
  • Slovenia
  • Poland
  • Lebanon
  • Russia
  • Greece.

 

 

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