Gulf stock markets fell on Tuesday (20 April), with oil company Aramco down 1.7 percent and the Saudi riyal dropped in the forwards market after US crude oil futures collapsed below $0 for the first time in history on a coronavirus-induced supply glut. Brent crude, the international benchmark, also slumped below $20 a barrel for the first time in 18 years. Lower oil prices, combined with other economic pressures caused by the coronavirus outbreak, are hurting the budgets of countries across the Middle East and North Africa (MENA) region that depend heavily on crude exports, and have strained their currencies.
The International Monetary Fund (IMF) last week projected all oil exporting countries in the MENA will loose more about $230bn in oil revenues after oil prices dropped by more than 60 percent this year. The oil price will stay low for an extended period of time as supply exceeds demand and the current situation on global oil markets is reminiscent of the 1980s oil glut, former BP boss John Browne warned on Tuesday (21 April). “There is still a lot of oil being produced that is going into storage and not being used,“ said Browne, referring to the negative prices as being a US issue because of a lack of storage in the country.
“This is very reminiscent of a time in the mid-1980s when exactly the same situation happened – too much supply, too little demand and prices of oil stayed low for 17 years,” according to the former BP boss. T dramatic fall in oil prices in the mid-1980s ultimately led to geopolitical tremors across the world, from the collapse of the Soviet Union in 1991 to a political crisis in Algeria that spawned a deadly civil war in the country. Some experts also argue that the demand for hydrocarbons will likely remain weak due to a growing awareness of climate change and transition to more sustainable sources of energy. “And that demand will be filled primarily by those who have no choice but to produce oil – so the state oil companies of the world,” says Browne.
