During normal times, if the world’s petroleum producers announced an agreement to slash output, oil prices would immediately spike. During normal times, lower crude prices would boost economic growth. During normal times, low oil prices might be reason to celebrate. But if there is one fact we can agree on, it is that these are not normal times.
The global economic crisis triggered by efforts to stop the coronavirus pandemic has not only upended some of the patterns we had grown accustomed to—it has also revealed that many long-standing preconceptions have become outdated. That is evident in the dramatic shifts buffeting the oil markets.
A month ago, when it was already clear that the coronavirus would squeeze economic growth and, as a consequence, would depress demand for oil around the world, Saudi Arabia and Russia engaged in a ferocious price war, opening up the taps to flood the market where a glut was already emerging. The move, not surprisingly, triggered the largest one-day drop in crude prices in history.