Oil hits $20 as demand continues to drop

This weekend, the price of oil hit a 2-decade low: $20. This low price is due to the fact that the spread of the virus continues to worsen around the world, especially in the United States. The United States currently represents over 17% of the world's oil production, or about 19 million barrels per day. In addition to being the world's largest oil producer, the nation also has the most reported cases of the Corona virus. What does this mean?

Essentially, it means that the daily demand for crude oil in the U.S. will drop sharply. Prior to this recent decline, the country had already closed its borders to several countries around the world. Like the United Kingdom and all European countries. This means that the airline sector will face a huge shortage in demand for transatlantic flights, and the need for energy will decrease accordingly. In this scenario, we look at just one specific example of the decline in crude oil use and demand.

Which industries are hit the hardest?

Although the airline sector is a major crude oil consumer, it accounts for only 8% of demand by sector. According to an OECD report from 3 years ago. Travel including road transport currently accounts for half of the demand. However, with the Corona forcing nations around the world to confine people to their homes, essentially limiting all travel, this means that fuel needs are also changing.

Thus, while 25% of the world's population is currently confined, this means that cars, vans and even delivery trucks, except in key industries, are taken out of circulation. As a result, and depending on the duration of containment, we could see crude oil prices continue to fall.

As shown in the above chart, the demand for crude oil is mainly made up of industries related to travel, whether by road, rail or air. With some experts warning that closures could last up to 7 months, these industries are likely to receive significant assistance from the respective governments in their local jurisdictions. Yesterday, Easyjet announced that it will join forces with companies like Ryanair to ground its entire fleet, which could result in huge job losses.  It is especially the sectors of activity that are strongly linked to flight experience, such as cabin crew or the boarding team, that will be most affected, as there are simply no flights to check in and no passengers to help until the crisis is averted.

Countries subject to containment rules (total or partial):

    South Africa

    New Zealand

    Saudi Arabia

    Colombia

    India

    United Kingdom

    Australia

    China

    Jordan

    Argentina

    Israel

    Belgium

    France

    Spain

    Italy

    Kuwait

    Ireland

    Norway

    Denmark

    El Salvador

    Indonesia

    Germany

    Portugal

    Czech Republic

    Slovenia

    Poland

    Lebanon

    Russia

    Greece.