Global Oil Prices (May 2020)

Global oil prices are on a slippery slope. Unfortunately, with coronavirus taking center stage the demand for oil isn’t as high as it used to be. This has led to surplus oil which would rapidly exceed the storage capacity, hence making the oil price go negative. To cater with the unforeseen situation and keep the prices stable the oil controlling nations have made large cuts in production thus reducing the supply of oil globally. India the 3rd largest importer of oil imports over 80% of its oil requirements, can benefit (overcome the inflationary and fiscal pressure) from tanking of oil price. But India’s oil price drop (7%) has not reflecting the drop in global oil prices (50%) yet. The reason for this maybe the government is keeping the benefits for itself and making up for the tax shortfall or the OMCs are using these benefits to cut their losses and keep them moving. The G20 economies are set to meet to find ways (most likely opening their strategic reserves) to help ease the impact of Coronavirus pandemic on the global energy market.

Given the rapid rising oil inventories, the market is still likely to be flooded with cheaper oil even when the demand recovers because the oil inventories will be flooding and in order to keep the cycle moving the prices will be kept low till they get stable.

– Yatin Kanwar