US oil price plunges to 20-year low as coronavirus hits demand
Following on from the largest oil supply agreement in history, prices have continued their volatility, with the latest sharp fall driven by the impending expiration of the WTI futures contract. Demand for Oil has reached new lows, as production lines and economies have ground to a halt globally
Although the latest agreement represented a productive step in the on-going price war between Moscow and Riyadh, this alone has understandably not been enough to offset the unprecedented disruption to global oil demand, brought on by the Coronavirus. The historic pact detailed an agreement to curb global supply by more than 10 million barrels a day. Market analysts can however see another OPEC backed deal around the corner to further curb the global oil supply and stabilise prices.
The relaxing of lockdowns in various European countries could be seen as a welcome sign for an oil industry desperate for an upturn in demand. However, demand is unlikely to increase significantly until the backend of 2020. Even so, 2021 is a more realistic timescale with economic activity
Although potentially dangerous in the longer term, with the risk of a increasing the spread of coronavirus, Trumps willingness and bullishness to remove lockdowns across America could spark an increase in oil demand as Americans go back to work.
As well as the obvious worries about demand, there are also concerns about storage which have contributed to the sharp fall seen on Monday 20th April. Drastic measures have been taken as an oversupply of 9 million barrels a day has overwhelmed global storage facilities. ‘Supertankers’, which can hold up to 2 million barrels of oil, have been drafted in to hold crude oil at sea, costing a massive $335,000 per day.
Economic impact of Coronavirus puts pressure on UK Governments lockdown measures
The Prime Minister is reluctant to ease the UK’s lockdown too soon, resisting pressure to open the country again as national cases slow. The UK economy has effectively ground to a halt after the country was put into lockdown, with a recession looming and 1 in 5 employees now accessing the governments job retention scheme.
The deputy chief medical officer reported a plateau of cases in hospital data, as calls to remove lockdown measures have begun to emerge. These calls come amid OBR estimates that the UK economy could shrink by 35% with 2 million job losses. Although for the most part the government’s furlough scheme has been successful in minimising unemployment as a result of the virus, this would only last until the end of June.
If the UK was to sink into a recession there would be large scale unemployment, as businesses simply cannot afford for employees to come back after the scheme ends. Even if the UK manages to avoid a recession, the economic impact of the virus is going to be felt well into the end of the year, many businesses still will not be able to take back all of the staff they have placed on furlough.
The longer the economy is at a standstill in lockdown, the longer the future growth potential will be disrupted, with the number of cases still high in comparison to other countries and the Foreign Secretary warning the lockdown could last another month, as of 20.4.20, the outlook for the UK economy looks bleak.
China's virus-hit economy shrinks for first time in decades
Friday’s figures (17.4.20) show China suffered a 6.8% contraction as the export driven economy felt the brunt of domestic lockdowns disrupting production as well as worldwide lockdowns and job losses causing huge declines in consumer demand.
Although announcing stimulus plans, this is on a smaller scale compared to other leading economy’s as analysts forecast that China will instead accept the economic impact this year and hope for better growth prospects in 2021
With a global recession looming, China’s economy looks in a precarious position as it is heavily reliant on global exports, dubbed ‘the worlds factory’. Although Chinese lockdowns are beginning to ease and production can continue, consumer spending globally is unlikely to pick up significantly amid fears of job losses and already lower disposable incomes.
On top of the immediate future of global exports looking bleak, China may suffer a new challenge in the wake of the virus as the world realises how vulnerable they are to having most of the production in one country. The Chinese economy may be forced to adapt to a new world, focusing more on the production of higher quality goods, similar to economies such as Germany and South Korea, as other emerging economies capitalise on the market share for cheap labour and production.
Although the world’s focus is currently on tackling the virus, the aftermath may see India and various African countries benefit from China’s vulnerability, and the scope to provide cheap labour in a more diversified way.
Coronavirus is dealing a devastating blow to already suffering sector
With the retail sector already suffering a tough 2019 as consumers move away from physical high streets in favour of online shopping, the forced closures of shops and hit to consumers confidence as well as their wallets, has brought many retailers to breaking point.
Even after lockdown restrictions are lifted, the economic impact of the pandemic is likely to linger well into the backend of the year, as many will be without jobs while others who are still in employment will be wary about unnecessary spending with a global recession looking very possible.
Although online retailers and delivery companies are still operating, the online sales alone are not enough to offset the demand and sales lost in the previous two months, with a ‘spending spree’ not likely in the wake of the coronavirus due to the aforementioned economic impact.
For many retailers, the virus has been the straw that broke the camels back, with store closures increasing gradually well before the start of 2020. Analytics house ‘GlobalData’ calculate a £14.5bn hit to British retailer sales, with former retail powerhouse Debenhams’s going into administration, while other leading industry leaders such as Arcadia group being forced to close several stores.
Unlike other issues facing the retail sector, this time it really is survival of the fittest with less market share to fight over as consumer spending continues to shrink. Only the largest, and those able to adapt to the current circumstances will be able to weather this storm.
European countries easing restrictions
As the data shows the slowing of the virus across the continent, many European countries have begun actioning plans to relax the distancing measures and re-opening businesses in an attempt to kickstart the economy.
Many countries such as Germany are grappling with the idea of how far to open- up the country again without posing a significant risk of a second peak of cases. With the help of data such as the person to person infection rate, measuring how many people a carrier of the virus infects, putting into perspective the scope of the virus in that particular country, Germany among others has begun removing some restrictions and allowing some non-essential workers back to work. One of the main drivers in this decision is the introduction of a smartphone app which tracks if a person has been in close proximity to someone who is infected. Many variations have been rolled out across European countries and although not mandatory, governments have strongly advised the population to use this technology.
Further outbreaks notwithstanding, the relaxing of lockdowns will provide a boost to European markets as economy’s slowly begin to function again. The European market index STOXX 600 has risen 8.43% since 3rd April at the time of writing. (Monday afternoon)
FT, 20th April (US oil price plunges to 20-year low as coronavirus hits demand)
FT, 11th April (G20 backs largest oil supply agreement in history
Guardian, 17th April (Coronavirus 'under control' in Germany, as some countries plan to relax lockdowns)
Bloomberg, 20th April (U.K.’s Johnson Resists Easing Lockdown on Fears of Second Wave)
ITV News, 19th April (Ending social distancing ‘risks second wave of Covid-19 deaths in UK’)
Guardian, 14th April (UK economy could shrink by 35% with 2m job losses, warns OBR)
BBC News, 17th April (China's virus-hit economy shrinks for first time in decades)
BBC News, 18th April (Green’s retail empire could close over 100 stores)
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