Crude oil with Covid-19, price war and its Crash.

Brent Crude is the benchmark through which 100 million barrels are prepared for pricing daily. Brent Crude is one of the most important commodity in the world. Brent crude is used as raw material by refining companies, paint companies, petro- chemical industry, aviation and other industrial power companies.

Now, as we all know that Covid-19 is the new issue which the whole world is facing with severe crisis. Virus has created a huge impact on economies of the world as well as crude prices. Coronavirus has got started from China which is one of the largest importer of oil in the world. The virus affect breakdown the demand of oil for China to 3.1 million barrels a day. Demand of crude oil stopped which is affecting a lots of oil companies in the world.

It’s not only in China where demand has gone off. In US Covid-19 creates a demand shock for crude oil dropping off by 4 million barrels per day. Demand has accompained with the rapid growth of inventory levels in form of Gasoline, Diesel, Jet Fuel and kerosene. Inventory has raised due to huge pumping of production upto 13 million barrels per day.

Brent crude price drops 31% since post Gulf War. This time war is for price and market share. Saudi Arabia second largest producer of oil wants to reduce output say, 8.3 million barrels per day due to global demand situation but it’s non-opec partner Russia completely ignores the idea and pumping more production to compete with US shale producers. Saudi Arabia in return has also started producing more which leads to higher level of inventories and now many oil producing companies don’t have tanks to reserve the output. Less demand and higher supply with higher inventory levels causes price crash in the global oil markets.

Prices are always derived through demand and supply situation. More inventory level in this situation is not worth for the whole market. In the next Opec+ meeting if both the countries don’t come to same page then prices can crash further as some analysts predicting it may drop upto $10 per barrel.