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Crude Oil Under Pressure on New European Lockdowns

November 2, 2020 By Mircea Vasiu

The coronavirus second wave of infections brought Europe to its knees. Shortly after it recovered somehow from the initial lockdowns, most European countries announced new restrictions.

Although the new lockdown measures are not so severe as in the spring, they will take their toll on economic activity. Inevitably, the new measures translate into lower oil demand and, as a consequence, lower oil prices.

The price of oil did not wait much to react – it lost 20% of its value in less than two weeks. Now that the United Kingdom announced a one-month long lockdown starting with next Thursday, further pressure will likely mount on the price of oil.

Crude Oil and Petroleum Products an Important Part of the 2040 Energy Mix

As the pandemic hit the world’s economies, it affected crude oil prices too. However, crude oil and petroleum products remain an important part of today’s energy mix and also for the next decades.

According to an analysis by Chevron, the natural gas’ size in the energy mix remains unchanged in the decades to come. The big changes appear in the coal share (declining) and renewables (increasing). Oil and oil-related products, while declining as well, will still account for a big chunk of the energy mix.

The current economic conditions put pressure on the price of oil. Mobility shrank, industries were shut, and now countries are shut down again. Inevitably, exogenous shocks like the pandemic will continue to depress the price of oil.

However, on the medium to long term, the price of oil will likely recover from any future dips generated by the pandemic. Despite the European economies suffering from the second wave of the pandemic, Chinese oil demand is doing fine. In fact, China shows growth.

Moreover, Australia reported its first day without a single COVID-19 infection over the weekend. Other economies in the region also coped better with the pandemic when compared to Europe or the United States.

Therefore, a strong recovery in Asia, followed by a gradual one in Europe and the United States warrant somehow stable oil prices around the $50 level for the years ahead.

All in all, oil and oil-related products continue to have a tremendous role in people’s day-to-day lives. Greener efforts from developed governments are welcomed, but their programs’ implementation takes time. In the meantime, the demand for oil can only go up in the short to medium term.