Oil Crisis

The petrol price fell so sharply within a week, even in the United States WIT petrol price hit minus 70 dollars. WIT is a futures market that many companies or individuals buy it to immobilize the future price in order not to face the unexpected costs. However, in this case, there is a significant problem. If a person buys a WIT futures contract, in the date company delivered the person’s crude barrel oil to a person’s house or workplace (whatever address written in the contract). That was the problem with the last oil crisis. Many people bought the WIT futures contracts and could not sell it before the exact date so, many people in panic tried to sell it at any price to as not to store the barrels in their houses. Therefore, the WIT oil prices all of a sudden collapsed. Namely, the Brent oil price did not fall below zero, but for sure, this panic also affected the Brent oil price, and its price tumbled down to $15 per barrel. That was a significant issue since the 2008 crisis. In fact, oil prices, even in 2008, did not fall below $36. In this case, demand for oil is significantly low, and the oil producer countries could not agree to corporate. Even if they decided recently to decrease the production of oil, still many countries like the United States keep producing oil. In the United States, the problem is that oil producers do not have enough storage and oil sellers (gas stations or airline companies) have a low demand for oil. They are not willing to store oil in their base and tanks.

As we see it in the graph, the oil price since the 2008 crisis has gone down by approximately 88% ( about $127). This fall put a spoke in oil producer countries’ wheel. Saudi Arabia, for instance, generates its significant income from oil and religious visits (Mekka and Medina). Unfortunately, this year many religious tours were cancelled by the central government, and oil demand fell sharply. Therefore, the fiscal deficit might be compulsive for the Saudi Arabian government.

In the same way, Russia and Canada earn a significant income from oil sales. This year their fiscal deficit will hit their central budget, and they will more likely knock the IMF’s door. Let’s talk about Canada for oil. In Canada, the oil sector is one of the most critical industries, which supported almost 530,000 jobs across the country (2017) and 108 billion dollars to Canada’s Gross Domestic Product (GDP) (2018). Namely, a significant number of the working class keep food on the table by working in the oil sector. Likewise, Russia’s GDP is about 1.64 trillion dollars, and oil revenue comprises 16% of its GDP in 2019, about 262 billion dollars. In short, for some oil revenue is so crucial and essential. I have a hunch that oil prices will remain depressed for a year in between prices 20 and 30 dollars if there is not another surprise news or event. Tourism is another big issue for many developing countries like Turkey in the coming summer. I want to analyze this topic in forthcoming writing.