Oil price crash, a call for cooperation

The epic crash of West Texas Intermediate crude futures on Monday is understandable given the weak global demand for oil and its oversupply. But first and foremost, it is about something more elusive, and thus more difficult to manage — the cloud of pessimism gathering over the global economic landscape, built on the broadening consensus that the COVID-19 rain cloud will not be going away any time soon.

No one anticipated the extent to which the novel coronavirus outbreak would impact global economic activities. But with economy after economy coming to a standstill, the repercussions are being felt worldwide.

That panicked speculators stampeded to offload the May futures contracts they had in their hands is indicative of the lack of demand for the oil that fuels the global economy.

In light of the world’s economic engines being switched off, the International Monetary Fund has forecast the worst global downturn since the Great Depression, and Morgan Stanley economists predict that pre-recession levels of output for the United States will not materialize until the fourth quarter of 2021.

There is a general belief that the global economy will not get going again next month. Although the minus price for crude futures was disproportionate with facts on the ground, it is increasingly evident that there is little expectation that the global economic situation will be significantly better in May. And that, unless there are tangible signs of improvement next month, pessimism will only become more pronounced.

In that case, worries about global financial troubles would inevitably exacerbate, and fears of a replay of the 2008 world financial crisis would grow.

To avoid that widely feared prospect, resuming economic activities is looming large as a pressing imperative for all governments. Yet that cannot be realized unless they have effective control over their domestic pandemic situations, the accomplishment of which in turn calls for greater international coordination and cooperation. Estranging potential partners and sowing seeds of distrust with unsubstantiated allegations is a distraction that will not only cost lives but also add to the world’s economic woes.

Prominent US politicians have been the main sowers of these seeds, but the unprecedented challenges facing the oil and gas industry in the US, which should have been brought into sharp focus by the negative oil prices, should make them aware that this is no time for them to be playing their blame games.

US policymakers need to realize the importance and urgency of strengthening the cooperation with other countries, particularly with China, the world’s second-largest economy, which has been the first country to rein in transmission of the virus, in order to control the pandemic as soon as possible and restart the global economy.