Oil wars and coronavirus

The novel coronavirus does not appear to be slowing as countries around the world are adopting drastic measures to stamp out the epidemic. Global equity markets have collapsed, trade routes have been disrupted and the global economy could lead to a recession over the outbreak.

The global number of confirmed cases has surpassed 100,000 and the death toll has reached over 3000 – mostly in mainland China – as efforts are being made to limit the number of cases and control the spread of the disease, giving researchers more time to identify effective treatments and develop vaccines.

Many countries are suspending travelers from entering, school and universities have been shut, and even sports events are in jeopardy. Even the way of life is changing as people are avoiding handshakes and physical contact. In Italy, some 16 million people are under quarantine as the country has reported 366 deaths, while Iran has temporarily released 70,000 prisoners as the toll reached 245.

The virus is having an adverse effect on the global stock markets amid the looming threat of a recession. This has even escalated in a price war on the oil market which is proving a nightmare for equity markets. China’s factories have either shuttered or operating far below capacity leading to a decline in oil demand, calling for deeper cuts in supplies to counter the effects of coronavirus.

The oil war has intensified as Saudi Arabia launched an all-out war with the biggest cut in prices in the past two decades. The benchmark Brent crude has plunged to $33.60 a barrel and could do down much further. A war for oil market share in a world battling a deadly epidemic is a nightmare for equity markets as it has no quick end due to the uncertainty over the contagion.

Saudi Arabia is using gearing to use the might of its oil production capacity to deliver a crushing blow to its rival producers and compel them to agree to a deep cut in production. The world is now set for the first annual decline in oil consumption in more than a decade due to the impact of coronavirus. The repercussions of the virus are spreading to other parts of the world and will have major implications on global energy and oil markets.

While governments and central banks need to come with a massive economic stimulus to cope up with the impact of the outbreak, it is also placing a huge strain on economies and stoking concerns of a worldwide recession. With no end in sight, it would be a long time before we recover and come out of the woods.