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May 13, 2020

‘Covid-19 hits oil industry hard’

Lahore

May 13, 2020

LAHORE:Covid-19 pandemic has exposed the governance systems of the world. Capitalism, authoritarianism, the free market, international trade, world healthcare, etc., have been brutally evaluated to be grossly ineffective. The first direct impact of the virus came as a shock to medical facilities.

This is the analysis of Imtiaz Rafi Butt, Chairman of Jinnah Rafi Foundation, shared with The News in a straightforward and logical manner. Imtiaz Rafi pointed out that “the super powers like China, European Union and United States have come to terms that instead of making bullets and missiles, they should have been stocking up medical supplies and ventilators. With this realisation, many other revelations are in the offing. The oil industry is now the second causality in the global market. For the very first time in human history, the price of black gold aka oil, stooped to negative, which actually means, the supplier is ready to pay the consumer to take the oil away. It not only lost its worth, it is, as of now, a problem for the one in possession of oil, as the storage cost are higher than its price in the market. How did this happen? What are the causes behind this disaster? What impact will this have and what will happen next? These are crucial questions that will test the heart and soul of leaders and nations around the globe. The world will never be the same again and needs to change its old ways”.

“To comprehend the present oil crisis, we need to look at two factors, the impact of the pandemic as it spread in December and the dynamics of politics between OPEC countries. Firstly, the pandemic caused huge lockdowns around the world. These lockdowns thrashed the global demand for oil and oil related products by over 40 percent. The steep drop in demand caused a direct drop in prices. As more and more industries, airlines, shipping companies, automotive sector, offices began to close down; there was further decrease in the requirement vis a vis demand for consumption of oil. Particularly, shutting down of factories in China was a large factor. As storage firms and oil companies got filled with backlog of supply, they decreased prices even further leading to the present crash in the oil market. Halting transportation sector like cars, buses and trains coming from closure of schools and offices, further reduced the consumption of fuels. Due to drop in demand, there was a sharp decrease in profits coming from oil and oil producing countries like the Arab States and Russia jumped in to secure dwindling profits. That’s what gave rise to the price war” the renowned entrepreneur & Philanthropist added.

He said the OPEC countries set the price of oil in the international markets through control of supply and production. As profits from oil fell in the international market, OPEC nations individually, without any consultation or arrangement, reduced the prices to capture market share.