By
Bhushan Akolkar
November 8th, 2023
Oil demand has plummeted by about 30% this year. According to Goldman Sachs analysts, it may stay weak in 2021 as well, especially if the second coronavirus wave takes place.
The world has just started a recovery from the coronavirus and the damage it has caused to the global economy. However, U.S. experts are warning of the possible second coronavirus wave. Following their worries, the oil market is down. Oil prices have dropped, as concerns over the coronavirus pandemic and its economic effect have led to the cancellation of support from supply cuts at the world’s leading producers.
Worldwide Oil Production is Declining
During the last two weeks, major oil benchmarks, Brent crude and West Texas Intermediate crude futures have been in the green, as the demand for fuel has more or less rebounded. This is mostly due to smoothing over quarantine measures and bringing back to normal life. However, signs of a possible second coronavirus wave have worried investors.
Oil production is declining, and today oil prices are down. Brent crude futures are currently 1.07% or 85 cents down, at $29.87 a barrel. The U.S. West Texas Intermediate (WTI) crude futures have plunged by 3.68% or 89 cents by the moment of writing, to $23.83 a barrel.
Oil demand has plummeted by about 30% this year. According to Goldman Sachs analysts, it may stay weak in 2021 as well, especially if the second coronavirus wave takes place.
OCBC economist Howie Lee in Singapore commented:
“That’s definitely a cause for concern as the last thing people want is for lockdowns to happen again across multiple cities, but I think authorities should be much more prepared right now to cope with a second wave. Overall, the risk environment looks quite conducive for further upside.”
There are also fears that the U.S. is running out of storage space. Tony Nunan, a senior risk manager at Mitsubishi Corp in Tokyo, said:
“People are surprised by how quickly the U.S. is shutting in production and that’s exactly what we need in order to support prices. There’s another 10 days before the June contract expires … if the WTI contract can avoid a crash going into expiry, hopefully we’ve seen the bottom.”
Will the U.S. Face a Second Coronavirus Wave?
As of today, the number of confirmed coronavirus cases in the US is the highest in the world, 1,367,638 cases. 256,336 people have recovered, 80,787 deaths have been reported. Americans are getting back to normal life as well, businesses are reopening, people are spending more time outside. However, some believe that the cancellation of the lockdown is too rapid.
Mark Zandi at Moody’s Analytics believes that fast reopening may lead to being totally unprepared if a second coronavirus wave comes. In this case, the economy will suffer from depression.
Zandi said:
“If we get a second wave, it will be a depression. We may not shut down again, but certainly it will scare people and spook people and weigh on the economy.”
Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, has a similar opinion:
“In my mind, it’s inevitable that we’ll have a return of the virus … when it does, how we handle it will determine our fate.”
European analysts have the same fears. The second coronavirus wave is even more dangerous until we have the vaccine.