Recovery of Oil Price and Keeping Covid-19 at Bay are Linked - the logic is simple!; it's individual civic responsibility

face mask 1918


We may not be out of the woods yet, as far as the once-in-a-century pandemic is concerned.

The world, however, had witnessed the worse before and managed to come out of it.

In 1918, the Spanish flu was a case in point: it affected over 500 million people and around 10% of them died with enormous suffering at a time, even in the West, the medical facilities were not great.

It lasted over two years and came in four waves.

In the end, the world bounced back and the recovery slowly picked up.

The oil price that languishes in a cauldron of uncertainties, will bounce back in a matter of weeks too, when the world is reeling from the impact.

In 2020, the world is in a better place: the health care may not be perfect, but way better than it was a century ago; the communication among nations is quick and efficient; sharing, both information and resources, is at an all-time high level; preventive measures are easy to implement.

We may have a second or even third wave of the pandemic; the death rate, however, will not be as bad as what we witnessed in the first wave, as the experience gained from it will provide the medical professionals with a catalyst to deliver a far better response.

As far as oil price is concerned, the main factor that still determines where the former stands is the demand. The secondary factors such as inventory build-up and rig count that took the attention in recent weeks, just stem from the primary main factor – the demand.

The demand depends on the factory activities, movement of air planes in the skies, traffic on the road and transportation of materials across the countries.

Since the food or material shortages are not reported even from the remotest parts of the world, the pandemic has not brought the movement of the essential goods to a standstill.

Since there still are goods to be transported, to and fro, the factory activities have not come down to zero level either.

They may not be functioning at the full capacity, of course. They certainly are not on a downward trend; on the contrary, they are picking up.

In this context, the demand of oil has been dented by low traffic on the roads and the lack of air travel by people due to understandable anxieties.

They are not going to stay that way for ever; these factors always evolve and history provides us with ample evidence to support it.

As far as air travel is concerned, in the aftermath of 9/11 terrorist attack in the US, air travel plummeted due to security fears – within a year it all recovered.

All in all, oil price will recover in proportion to the combination of traffic on the roads, air travel recovery, factory activities and the revival of the goods and services sector as a whole.

Whatever the Green activists say the fossil fuels are here to stay. In this context, the world needs oil and we will not be able live without it in the foreseeable future.

In the light of shale oil production in the US and discovery of oil field in many parts of the world, a price tag of $100.00 a barrel is just an aspiring goal of some investors.

The price, however, will go beyond the point of break-even so that the industry is sustainable and  can move forward while being fully aware of the new ground realities.

 

 

 

 


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