Petroleum is a widely used commodity that nations and citizens rely on each day. Its price, however, isn’t exactly tied to fundamental supply or demand. Typical market conditions, at least in the world for finance, will raise prices when demand rises. If prices, instead, lower for no clear reason, then you must ask which entity caused it or for what political gains. The shift in oil prices during COVID-19’s outbreak created a new environment for oil producers to work in.
Down 30% in April
Oil producers don’t show shortages of oil in their current holdings. Getting the consumer to pay for that oil, however, is an entirely different matter than drilling it. Though now emerging from economic isolation, the world is still slow to rebound on its oil use. The yearly price of oil tends to fluctuate, but the consumption of this commodity can remain relatively stable. That stability was lost during COVID. In March of 2020, oil was 10% lower and down 30% that April.
Saudi and Russian Price Wars
Oil-producing nations have a right to charge a premium or discount on the oil they sell. Such is the basis of price wars. Oil-price wars are economically destructive, for they aren’t done with an intent to profit. In an effort to out bid a nation out of oil markets, a single oil producer only needs to lower their prices. This causes others to follow suit–in order to keep consumers or new contracts. By the time OPEC acted to balance its scales in 2021, oil had dropped by $45.
Nations Seeking Energy Independence
The war in Ukraine also puts undue stress on the oil market. Since Russia provides Europe with its major share of petrol, Ukraine, where Russia’s oil enters Europe, has become an expensive battleground for petroleum. The uncertain fate of Ukraine and the open contracts Russia has for Europe’s oil delivery puts a strain on recent-prices per barrel. Prices will rise if a war delays or destroys oil deliveries. The current rise in prices shows how real these military conflicts are.