Coronavirus Pandemic and Oil Price Wars- what’s the impact on Energy Prices?

It was only a few short weeks ago that we wrote about how oil and gas prices were under pressure over concerns over the spread of the Covid-19 virus. Then, it was already wreaking havoc in China but hadn’t spread too far elsewhere.

Now, it is everywhere. In unprecedented scenes, the entirety of Italy is in lockdown and Spain is likely to follow. Be in no doubt. This is not just a cold or the Flu. Stories emerging from Italy by frontline medical staff are a testament to that.

This is just the beginning. The entirety of the EU has seen a spike in infections and the UK is preparing to take delaying actions over the next few days with a peak in the number of cases expected within the next fortnight.

On Monday the markets tanked, witnessing the biggest drop since the collapse of Lehmann Brothers back in 2008, the event that sparked the Great Recession, one of the if not the most devastating economic crisis of the modern age.

Be assured that Covid-19 has and will continue to cause major disruption to the global economy and that includes energy prices and production.

For example, the Oil giant Equinor has a confirmed case of coronavirus on one of its assets in the Norwegian section of the North Sea. If it can spread to the workforce on remote oil rigs in the North Sea, it can get anywhere.

For more on the impact of the Coronavirus click here

The cooperation between two of the world’s largest oil producers is at an end. Saudi Arabia, the dominant member of the Organisation of the Petroleum Exporting Countries is in a battle of wills with Russia over production cuts.

They want the production to be reduced to support the price of the commodity in the wake of the price collapse over the coronavirus outbreak. Russia didn’t agree and now the two are openly hostile to each other.

Following talks between the two OPEC officials delivered an ultimatum.

The group would reduce its oil production by 1.5 million barrels per day and Russia must follow suit. Russia reacted with a strongly delivered ‘No’.

With a compromise not possible the Saudis then threatened to flood the market, a move that would tank the price of an already oversupplied commodity.

With the Covid-19 virus causing massive disruption already an oil price war could not have come at a worse time.

Those nations that rely on oil revenue to finance social programmes and health care will feel the pain the most.

As Fatih Birol, Executive Director of the International Energy Agency said; “Playing Russian roulette in oil markets may have grave consequences.”

With so much uncertainty in the global energy markets as a result of the oil price wars, some commentators are suggesting that now is the time for the world to put far more focus on renewable energy sources.

Natural gas meanwhile continues to experience price drops as excess production and weakened demand continue to weigh.

With the Covid-19 outbreak becoming global things for the gas sector are forecast to become even grimmer. Unlike oil, gas has no cartel to oversee it which means that gas is in an even more precarious situation than oil.

Falling oil and gas prices won’t help the environment as cheaper prices result in higher demand.

Buy it when its cheap will likely be the motto, which in turn will see more competition for renewable sources. Why buy an expensive electric car when you can top up your petrol engine car for cheap?

Another factor to consider is that the likes of Russia and Saudi Arabia aren’t held to the same sort of environmental standards as many western nations are.

This might be good news for energy consumers in the short term, but the instability in the markets and the one-two punch delivered by the Covid-19 virus outbreak and oil prices war is likely to bite back in the long term as businesses and producers will seek to recoup their losses.

What these issues are likely to highlight is the need for a more secure and less volatile source of energy.

With the world facing a period of instability, the need for more secure sources of energy has never been greater.

The UK is investing billions of pounds into renewable energy and the new technologies required to make those sources sustainable and effective, whether it pays off for the consumer or not remains to be seen.

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