While we don’t know how severely COVID-19 will affect public health and the global economy, the disease is a driver of global uncertainty and concern.
Uncertainty, of course, is bad for the economy, bad for consumer sentiment, and bad for business investment. While this kind of pandemic usually produces only a very short term economic impact, it can have some serious effects in particular areas of the economy. One of those areas is the oil business.
As economic activity slowed sharply across the globe, demand for petroleum and petroleum products plummeted. The drop in demand, coupled with an unexpected increase in supply, led to a collapse in crude oil prices and subsequent impacts on prices for refined petroleum products and other downstream items, notably gasoline. As economies reopened, the initial price downturn gave way to reduced oil production and some renewed demand. As a result, prices for oil products partially recovered.
If the outbreak is contained soon, we should be optimistic about how oil prices are going to respond. For now, the industry will likely see additional downward pressure as news continues to come out and more infections occur, but that would probably lead to production cuts by OPEC and firming prices.
The COVID-19 pandemic affected the collection of BLS price data, although the impact for price indexes in the energy sector was less pronounced than that in other sectors. Despite the constraints associated with the pandemic, price data collection has continued at a sufficient level, allowing BLS to publish dependable, high-quality price indexes.
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