The global oil industry is facing a perfect storm as demand plummets because of the coronavirus pandemic at the same time as a spat between Saudi Arabia and Russia causes supply to skyrocket.
The oversupply means countries are running out of storage space for their excess of black gold, in what consultancy IHS Markit calls “the most extreme global oil supply surplus ever recorded”.
The price now stands at around $27, having risen from just over $20 a barrel on 18 March - the lowest price in 18 years. Analysts have speculated that the crisis could see the price of oil drop below an unprecedented $10 a barrel.
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Will UK consumers reap the benefit?
The drop in oil prices “will be felt most keenly by drivers”, says The Telegraph. “Bill payers will also benefit in coming months, with lower global energy prices and a cut to the Ofgem price cap from April expected to reduce gas and electricity costs.”
As the coronavirus lockdown massively reduces travel and economic activity, with people staying isolated at home, UK fuel faces a double impact similar to the global industry: a reduction in demand and abundance of supply. Earlier this week, Morrisons and Asda slashed up to 12p from the price of fuel.
It was, says The Sun, the UK's “largest ever single price cut”.
What’s more, as oil prices plummet, a number of industries will see their operating costs reduce. This, coupled with the reduced consumer demand, has resulted in a slowed rate of inflation.
Data from the Office for National Statistics recorded that consumer price inflation slowed to 1.7% in February from 1.8% the previous month, and this slowing rate should be of some help to consumers as the economy stutters as a result of Covid-19.
It was, said Howard Archer, chief economic adviser at EY Item Club, “a small step in the right direction for consumer purchasing power”.
He added: “Inflation looks certain to fall back markedly over the coming months which will provide some much-needed help for consumers and the economy.”
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Who loses?
“It is no exaggeration to say the oil industry faces its gravest crisis of the past 100 years,” says the Financial Times.
In the UK, the North Sea oil industry supports about 250,000 workers, and while the larger companies may be able to survive the plummeting prices, job cuts are likely to follow as costs are reduced.
The oil price war has already “wiped billions from the value of UK companies”, reports The Guardian, “and could threaten the long-term survival of weaker firms”.
Deirdre Michie, the chief executive of Oil and Gas UK, said the global price collapse has left the UK’s oil industry “in a paper-thin position”.
