Short-term future of global economy is bleak
WHILE the loss of demand is equivalent to the daily production of OPEC, it could be even more with the recent cuts in oil production globally. The current demand for oil is down by 3 percent, which covers OPEC’s production of previous years prior to the production cuts.
Coronavirus has brought forward some awkward figures and statistics in almost every country in the world, starting with oil hitting zero level and traders begging for relief and ending up paying more money for their purchases with additional dollars just to get rid of them. The short-term future is bleak and nobody seems to know when the global economy will become normal.
The questions in everyone’s minds are – When will our daily lives become normal? When can everybody go back to work or school or walk freely without having to wear gloves or masks?
This seems like something never to come back soon. Even if we go back to normal life again, will we still have our jobs? Will we get our salaries in full? More than 33 million workers are out of work in the US and seeking employment, and many of whose weekly or monthly pay checks have been reduced by 40-50 percent. Landowners with their rents reduced cannot do anything as they are fully aware that most of their tenants are locked in and have no place to go.
Oil producing countries are faced with immediate shortage of cash as their daily cash fl ow has fallen sharply from $100 million to less than $40 million per day. Each of these countries is looking for ways and means to find a source or tool to convert into cash.
For oil demand to pick up, it is going to take a long time, perhaps another two years, to witness any real demand for oil. Until then, the oil price will remain below $40 a barrel. The rate of reduction is too low and OPEC should cut its total production to rectify today’s zero growth.
We are currently witnessing many companies going under, and only the fittest and strongest will survive. Will the world be facing a new reality with new facelift or will have to restart all over against, putting the past behind with a new page? We have a new world to face and no one knows its outcome, but it certainly seems bitter.
P.S.: Our message remains the same – Stay at home and no need to move out of your house. Unless necessary to leave your houses, make sure you are equipped with mask and gloves and maintain social distancing of minimum two meters.
The numbers are increasing and only we can keep the numbers down. Maintain social distancing and avoid congestion to ensure a better, easier and brighter tomorrow. The end of this crisis is coming soon.
By Kamel Al-Harami Independent Oil Analyst