Adding Fuel to the Fire: Cheap Oil during the COVID-19 Pandemic

Collette Mari Wheeler, John Baffes, Alain Kabundi (), Gene Kindberg-Hanlon, Peter Nagle and Franziska Ohnsorge

No 9320, Policy Research Working Paper Series from The World Bank

Abstract: The outbreak of COVID-19 and the wide-ranging measures needed to slow its advance triggered an unprecedented collapse in oil demand, a surge in oil inventories, and a record one-month decline in oil prices in March 2020. This paper examines the likely implications of the 2020 oil price plunge for emerging market and developing economies. It presents four main results. First, the record plunge in oil prices was predominantly driven by demand factors as wide-ranging measures to stem the pandemic precipitated an unprecedented collapse in oil demand, but the surge in oil inventories also exerted downward pressure on oil prices. Second, this latest oil price decline was preceded by six previous plunges over the past half-century, during which energy exporters and importers suffered similar initial output losses (about 0.5 percent) that were unwound within three years. Third, the current episode of low oil prices holds limited promise to boost the global economy amid widespread restrictions and narrow room for fiscal support in energy-exporting emerging market and developing economies. Fourth, many emerging market and developing economies entered the current public health crisis with precarious fiscal positions; current low oil prices are thus an opportunity to review energy-pricing policies, including remaining energy subsidies, to mobilize domestic resources.

Keywords: Energy and Mining; Energy and Environment; Energy Demand; Economic Assistance; Services&Transfers to Poor; Disability; Energy Policies&Economics; Access of Poor to Social Services; Transport Services; Macroeconomic Management; International Trade and Trade Rules (search for similar items in EconPapers)
Date: 2020-07-13
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (7)

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