Letter to BS: Decline in crude oil price is a symptom, not the disease

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The decline in crude oil price was expected. For over four decades now, the global economy has been linked to the state of oil demand and its elevated prices has been coterminous with a surge in the economy and trade. As global trade peaked, so did crude up to 2008-09, thereafter Brent Crude fell and economic deceleration set in. Oil sector investments languished.

 

What should worry us today is the return of a familiar script. This steep 27 per cent drop portends an extended global economic turbulence far beyond Covid-19 or even Trumpian trade bravado. The first blow is on Saudi's Aramco super mega issue of $25/30 bn that has today dropped below issue price. Oil shocks are now coming home to roost for producers, in revenge. Crash of crude is a symptom, not the disease.

 

Oil and gas are responsible for more than 60 per cent of Russia's exports and provide for more than 30 per cent of the GDP. It has to sell oil to keep going as do many others and cutting production is anathema to them. Only incremental growth in economies can elevate the crude.

 

R Narayanan Navi, Mumbai

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