• Coronavirus travel bans have led to an unprecedented drop in demand for oil, according to the World Bank.
  • Demand is expected to fall by 9.3 million barrels a day.
  • Prices have fallen sharply, and below zero in some cases.

With much of the world shut down due to coronavirus, the consequences for commodities have been dramatic.

Demand for oil has plummeted, with uncertainty over production levels among major producers compounding the problem, according to the World Bank. This year, the IEA expects it to fall by 9.3 million barrels per day (9.3%), from the 2019 level of 100 million a day. That’s equivalent to losing the entire consumption of India and Africa, according to Bloomberg.

Oil prices
A historic drop in oil prices
Image: World Bank

Historic low

The early eighties is the only time in recent history that we have come anywhere close to experiencing something like this. Even then, demand fell by just over 4% in 1980, just over 3% in 1981 and 2.69% in 1982.

In 2008, the Great Recession led to demand falling by 0.66%.

So it’s clear this crisis is unique. And it’s had a huge impact on oil prices. In April, they reached a historic low, says the World Bank, with prices for the US benchmark falling below zero on 20 April – as far as minus $37.63 a barrel. Producers were paying to have their oil taken away rather than store it.

This drop was partly because oil is traded on its future price, and with the expiration date for May contracts approaching, investors didn’t want to take delivery of the oil and incur storage costs. June contracts are trading at about $20 a barrel.

What is the World Economic Forum doing about the coronavirus outbreak?

Responding to the COVID-19 pandemic requires global cooperation among governments, international organizations and the business community, which is at the centre of the World Economic Forum’s mission as the International Organization for Public-Private Cooperation.

Since its launch on 11 March, the Forum’s COVID Action Platform has brought together 1,667 stakeholders from 1,106 businesses and organizations to mitigate the risk and impact of the unprecedented global health emergency that is COVID-19.

The platform is created with the support of the World Health Organization and is open to all businesses and industry groups, as well as other stakeholders, aiming to integrate and inform joint action.

As an organization, the Forum has a track record of supporting efforts to contain epidemics. In 2017, at our Annual Meeting, the Coalition for Epidemic Preparedness Innovations (CEPI) was launched – bringing together experts from government, business, health, academia and civil society to accelerate the development of vaccines. CEPI is currently supporting the race to develop a vaccine against this strand of the coronavirus.

Looking forward

The Organization of the Petroleum Exporting Countries (OPEC) and other oil producers have agreed to cut production levels by more than 20% in May and June to ease some of the pressure on oil markets.

And the situation is expected to ease in the second half of 2020, with global demand down by about 5 million barrels a day compared with the same period last year, the IEA and OPEC predict.

But some in the industry say that, while we may not see negative oil prices again, with the world running out of space to put oil – global onshore storage is roughly 85% full – this is far from over.