The ongoing pandemic situation has had a monumental impact on almost every aspect of society across the world. There has been massive damage to human life as well as businesses across the globe.
Furthermore, travel restrictions and social distancing measures have had severe financial ramifications, with many businesses forced to cease or drastically reduce their trading operations in response to the outbreak.
Even global superpowers such as China and the United States have felt the financial pinch in the wake of Covid-19, although fluctuations across all sectors have presented opportunities for those commodities and forex traders who have their finger on the pulse and are savvy enough to capitalise.
One of the many markets to have experienced significant changes over recent months is that of oil. As a multi-billion dollar industry, it plays a pivotal role in the state of the global economy. It can be a volatile market under normal circumstances, let alone when there’s a worldwide pandemic to factor into the equation, so is now a good time to be trading in oil?
How Coronavirus has impacted the industry
The Covid-19 outbreak has led to a huge drop in demand for crude oil. With foreign travel severely restricted and the vast majority of people around the world working from home rather than commuting, need has been greatly reduced and prices have fallen as a result.
However, as many countries recover from the initial peak of infections and lockdown measures begin to ease, it stands to reason that the oil market will start to regain some form of stability. The monthly oil market report from the Organization of the Petroleum Exporting Countries (OPEC) revealed that spot crude oil prices rebounded in May from the low levels registered in April, as “physical market fundamentals improved significantly.”
OPEC’s influence on the market
Made up of 13 member countries including the likes of Saudi Arabia, the United Arab Emirates and Kuwait, OPEC (which allies with other nations such as Russia to form a loose affiliation known as OPEC+) has the power to regulate oil supplies and consequently influence global prices.
This was evidenced back in April, when a deal was reached to slash worldwide production by around 10% following the drop in demand caused by the Covid-19 outbreak. That agreement came following pressure from US President Donald Trump, who urged OPEC to take action that would stabilise the markets and save “hundreds of thousands” of jobs in the States.
The Singapore oil trading scandal
Meanwhile, major developments in Singapore have the potential to make a significant impact on the global market. In April, it was revealed that Hin Leong Trading had suffered $800m in futures trading losses that it had not disclosed. Founder Lim Oon Kuin admitted the business had not been making profit for years, and that oil pledged as collateral for loans had been sold to raise funds.
Hin Leong owed almost $4 billion to its lenders and subsequently filed for bankruptcy while Mr Lim resigned from his post. The scandal has rocked the trading industry and could have far-reaching consequences if banks such as HSBC – thought to be owed $600m by Hin Leong – are hesitant to provide funds in the future. These revelations could contribute to increased volatility in the market, which, combined with recovering oil prices, might provide ample opportunity for traders.