COVID-19 triggered a collapse in oil prices from approximately 60 to 20 dollars per barrel between January and April 2020. Signs of a rebound are visible but prices remain well below the breakeven for many producers. If prices stay this low for long, or if they fall again after a partial rally in a relapse scenario, the world may witness a crisis within the crisis, with even further adverse effects on the world economy.
Small and midsize oil companies could go bankrupt in the US and drag down their creditors, with potential repercussions on the global financial system. Some “zombie” production has continued as operators have been drilling at a loss, but this is unsustainable in the long term. Hundreds of thousands of people would then lose their job, further reducing consumer spending. Even in producing countries with low extraction costs, state budgets would shrink with additional backlashes on the economy, particularly where this is very much state-driven.
Read the publication here.
This blog first appeared on the IAI site.
Author: Luca Franza is Head of the Energy, Climate and Resources Programme, IAI.
Image courtesy of Jasmine Halki via Flickr.
The views are those of the author and not necessarily those of ETTG.