Weekly Energy Recap: Economic anxiety hits oil prices

A board displays losses of Germany's share index DAX at the stock exchange in Frankfurt am Main, western Germany, on February 28, 2020. (AFP)
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Updated 01 March 2020

Weekly Energy Recap: Economic anxiety hits oil prices

Crude oil prices recorded their sharpest weekly drop since the 2008 financial crisis amid an increasing focus on the economic impact of the coronavirus.
That triggered fears of weakening demand as COVID-19 spread outside China.
Brent crude dropped to $50.52 per barrel, as WTI retreated to $44.76. This represents an almost 11 percent drop from last week’s highs and a 22 percent drop from this year highs in early January.
The sharp fall in oil prices coincided with a plunge in equity markets as investors weighed the economic impact of the coronavirus outbreak. Stockmarkets also experienced the worst weekly performance since the 2008 financial crisis.
Oil markets experienced a sharp drop in trading, which has led to an expectation of a prolonged period of an oversupplied market, with demand badly hurt as the virus spreads to large oil-importing economies including Japan, South Korea and Italy.
Expectations of an extended oversupplied market has all but wiped out hopes of higher demand in the coming months from China and the wider Asian market — especially because there has been so much flight disruption.
The land and sea transportation networks seems to have overshadowed other market fundamentals.
The petroleum refined product market has also been hit hard on concerns that the outbreak could impact consumer demand. Aviation jet fuel margins tumbled faster than for other petroleum refined products.
Such bearish developments require steeper output cuts by producers inside and outside OPEC to continue their collaboration till the end of 2020. Some analysts have described it as a nightmare scenario for OPEC when the group meets in early March.
It is not just about oil prices now but the stability of the global economy.


G20 ministers agree to keep markets open, tackle pandemic supply disruptions

Updated 31 March 2020

G20 ministers agree to keep markets open, tackle pandemic supply disruptions

  • G20 leaders pledged last week to inject over $5 trillion into the global economy to limit job and income losses from the coronavirus outbreak
  • The coronavirus has infected nearly 738,500 people worldwide and killed some 35,000

RIYADH/WASHINGTON: Trade ministers from the Group of 20 major economies agreed on Monday to keep their markets open and ensure the continued flow of vital medical supplies, equipment and other essential goods as the world battles the deadly coronavirus pandemic.
G20 leaders pledged last week to inject over $5 trillion into the global economy to limit job and income losses from the coronavirus outbreak, while working to ease supply disruptions caused by border closures by national governments anxious to limit transmission of the virus.
In a joint statement issued after a videoconference, the trade ministers pledged to take “immediate necessary measures” to facilitate trade, incentivize additional production of equipment and drugs, and minimize supply chain disruptions.
They agreed that all emergency measures should be “targeted, proportionate, transparent, and temporary,” while sticking to World Trade Organization (WTO) rules and not creating “unnecessary barriers” to trade.
They also vowed to work to prevent profiteering and unjustified price increases, and keep supplies flowing on an affordable and equitable basis.
“As we fight the pandemic both individually and collectively and seek to mitigate its impacts on international trade and investment, we will continue to work together to deliver a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open,” the ministers said.
They agreed to notify the WTO about any trade-related measures taken to keep global supply chains running and said they would convene again as necessary.
The ministers, however, stopped short of explicitly calling for an end to export bans that many countries, including G20 members France, Germany and India, have enacted on drugs and medical supplies. A key adviser to US President Donald Trump is working on new rules to expand “Buy America” mandates to the medical equipment and pharmaceutical sectors, something that dozens of business groups said could worsen shortages.
The joint statement included the phrase “consistent with national requirements” already used by G20 leaders, which experts say could provide a loophole for protectionist barriers.
Lack of protective medical gear is putting doctors and nurses at risk. Many countries rely on China, the source of the outbreak, for drug ingredients and are struggling to avoid shortages after lockdown measures prompted by the epidemic held up supplies and delayed shipments.
Supply chains are backing up as air freight capacity plunges and companies struggle to find truck drivers and shipping crews. Europe and the United States are short of tens of thousands of freight containers. Shippers struggle with crew shortages and quarantines at ports. Agriculture is also being disrupted.
The ministerial video conference was attended by representatives from the WTO, World Health Organization and Organization for Economic Cooperation and Development.
A senior World Bank official urged G20 members to agree to refrain from imposing new export restrictions on critical medical supplies, food or other key products, and to eliminate or reduce tariffs on imports of key products.
US Trade Representative Robert Lighthizer told the ministers during the meeting that the pandemic had revealed vulnerabilities in the US economy caused by over-dependence on cheap medical supplies from other countries. He did not reference the “Buy America” rule specifically, but said Washington was encouraging diversification and wanted to promote more domestic manufacturing to produce more suppliers for the United States and others.
G20 finance ministers and central bankers will also meet virtually, on Tuesday, for the second time in just over a week to continue coordinating their response, the Saudi G20 secretariat said, as worries grow about the debt crisis looming over poorer countries.
Japanese Trade Minister Hiroshi Kajiyama told counterparts that both the public and private sectors should try to avoid shutting supply networks to enable an early resumption of economic activities.
The coronavirus has infected nearly 738,500 people worldwide and killed some 35,000, and has plunged the world into a global recession, according to International Monetary Fund chief Kristalina Georgieva.