Crude oil is one of the most popularly traded commodities, since it is in such high, global demand. The world is reliant on crude oil for the production of fuels that very literally, keep us moving — these include gasoline, diesel and jet fuel.
As such, the balance of supply and demand is one of the most influential factors affecting crude oil prices and oil trading. When demand decreases, so too does the price of a commodity. However, if supply decreases and demand increases, then there is a rise in the value of oil.
Of course, the demand for oil products is related to our ability to travel, both nationally and internationally, both of which have been restricted or completely banned during COVID-19 lockdown periods.
Therefore, it’s inevitable that the pandemic has affected crude oil prices, and we will explore how significantly this commodity has suffered because of the impact of coronavirus.
COVID-19’s effect on oil supply
Some of the world’s biggest suppliers of oil can be found in the Middle East and North Africa (MENA). In March 2020, the world was in its earliest stages of the coronavirus pandemic, however, Iran had already reported 20,000 infections and over 1,500 deaths. Saudi Arabia had also tolled 511 cases, with Qatar following closely with 481.
Since these countries are heavily involved in the world’s supply of oil, this directly impacted its trade. Labour was reduced because workers began to fall ill with the virus, or were affected by travel restrictions, that were enforced to control the spread of the disease.
The US is also one of the world’s top oil suppliers, and has been the most heavily affected by COVID-19, with cases amounting to over 41 million. Despite the effective rollout of vaccines in the US and the easing of lockdowns, concerns were risen with regards to the country’s economic recovery — fuelled by the outbreak of the Delta variant. These worries caused oil prices to fall significantly, since this strain of the virus could have affected both the supply and demand of crude oil, due to potential further lockdowns and restrictions.
COVID-19’s effect on demand for oil
As we previously mentioned, the demand for oil is directly affected by the travel industry, since the less we travel, the less need there is for the fuels that oil is used to produce. As a result, recurrent lockdowns and an almost complete pause to international travel, caused the demand for oil to plummet to historic lows.
In the early months of 2021, the demand for oil began to rise — as a result of global vaccine rollout programmes, that spurred the resumption of national and international travel. However, the momentum for the demand of oil was halted abruptly by the emergence and spread of the COVID-19 Delta variant.
The effects of the virus now appear to be lessening and normality is resuming, because of the successful vaccination rollout. As a result, the International Energy Agency (IEA) predicts that the global demand for oil will reach pre-pandemic levels by the end of 2022. They also expect that demand will reach 5.4 million barrels per day by the end of 2021 and increase by a further 3.1 million in 2022, which would be one of the fastest recoveries in history.
The effect of the supply and demand slump on prices
Oil prices hit an all-time low in 2020, with the spread of COVID-19 throughout the world. The pandemic caused global uncertainty, which then led to a dispute between Russia and Saudi Arabia (two of the world’s leading oil producers) over proposed oil-production cuts. These countries did eventually come to an agreement, but this discord had an adverse effect on the price of crude oil, because of the uncertainty and concern that it caused for traders, suppliers and distributers.
Although the pandemic has had a direct negative impact upon oil prices, the future looks bright for the recovery of crude oil. As we previously mentioned, industry experts have predicted that oil prices should continue to recover well in the second half of 2021, and should experience a full recovery in 2022.