Oil price to stay low in near and likely medium term

Subject

Oil market dynamics.

Significance

The price of crude oil, already weakened by the impact of the COVID-19 outbreak on demand, has plummeted this month after Russia refused to agree to further output cuts in coordination with OPEC. The plunge in the oil price will exert huge financial pressure on economies heavily dependent on oil revenues, including Saudi Arabia. Oil companies, particularly US shale oil producers, will also be under pressure.

Impacts

• Budgetary pressures will sharply reduce petro-economies’ GDP growth this year, exerting a sizeable drag on global economic growth.
• Net importing nations will see little benefit from the sharp price drop until transportation demand recovers from the impact of COVID-19.
• Oil is losing market share in transportation usage, but cheap oil poses a risk to this; regulation will maintain the direction of travel.
• The oil services sector will face huge pressure on profit margins.