The outbreak of COVID-19 and the wide-ranging measures needed to slow its advance triggered an unprecedented collapse in oil demand, a surge in oil inventories, and a record one-month decline in oil prices in March 2020. This paper examines the likely implications of the 2020 oil price plunge for emerging market and developing economies. It presents four main results. First, the record plunge in oil prices was predominantly driven by demand factors as wide-ranging measures to stem the pandemic precipitated an unprecedented collapse in oil demand, but the surge in oil inventories also exerted downward pressure on oil prices. Second, this latest oil price decline was preceded by six previous plunges over the past half-century, during which energy exporters and importers suffered similar initial output losses (about 0.5 percent) that were unwound within three years. Third, the current episode of low oil prices holds limited promise to boost the global economy amid widespread restrictions and narrow room for fiscal support in energy-exporting emerging market and developing economies. Fourth, many emerging market and developing economies entered the current public health crisis with precarious fiscal positions; current low oil prices are thus an opportunity to review energy-pricing policies, including remaining energy subsidies, to mobilize domestic resources.
Details
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Author
Wheeler,Collette Mari, Baffes,John, Kabundi,Alain Ntumba, Kindberg-Hanlon,Gene, Nagle,Peter Stephen Oliver, Ohnsorge,Franziska Lieselotte
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Document Date
2020/07/13
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Document Type
Policy Research Working Paper
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Report Number
WPS9320
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2020/07/13
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Disclosure Status
Disclosed
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Doc Name
Adding Fuel to the Fire : Cheap Oil during the COVID-19 Pandemic
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Keywords
oil price; energy exporter; short-run price elasticity; low oil price; oil price decline; flexible exchange rate regime; legal and regulatory framework; foreign exchange market intervention; targeted social safety net; crude oil price fall; real exchange rate depreciation; value-added tax; improvement in fuel efficiency; income elasticity of demand; degree of risk aversion; price elasticity of demand; energy subsidies; oil price collapse; global financial crisis; global recession
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Citation
Wheeler,Collette Mari Baffes,John Kabundi,Alain Ntumba Kindberg-Hanlon,Gene Nagle,Peter Stephen Oliver Ohnsorge,Franziska Lieselotte
Adding Fuel to the Fire : Cheap Oil during the COVID-19 Pandemic (English). Policy Research working paper,no. WPS 9320,COVID-19 (Coronavirus) Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/284371594670190475/Adding-Fuel-to-the-Fire-Cheap-Oil-during-the-COVID-19-Pandemic