IT was indeed a startling development, even if it was for a fleeting moment. For one day, the price of oil in one of the contracts, in a corner of the vast global oil market, was negative. This meant that those who held those contracts were willing to pay someone to actually take that oil off their hands. Of course, this doesn’t mean that global oil prices had crashed in negative territory. The development occurred only for future contracts for the May delivery, that were expiring within a day of when the price turned negative; and it only happened in the market known as West Texas Intermediate, or WTI, one of the many oil trading markets around the world. But all caveats aside, it was nevertheless a remarkable development, especially for those who remember the oil price spiral of a decade ago that saw some global prices rise to a record $147 per barrel. It was a sight to behold to see how the mighty have fallen.

The negative price aside, oil markets around the world are seeing collapsing prices. Pakistan, as a net importer of oil and gas (the price of which is indexed to oil) stands to reap some gains in its import bill as a result of this, but it would be patently premature to find too much comfort in this fact. Oil prices are decreasing because activity in the advanced industrial economies has fallen to a historic low, and demand has dried up almost completely, while storage space around the world is full. Without demand, and without further storage, there is nowhere for the price to go but down. But along with the oil price, what is also likely to be connected to this downward spiral is Pakistan’s exports and remittances, since the former come largely from the advanced industrial economies of the European Union and the US, and the latter from the oil-rich kingdoms of the Gulf region. The overall context of the oil price declines is one that does not favour Pakistan in any way. The steep declines of today, much like the spiral of a decade ago, point to something profoundly broken in the oil markets in this age. Such deep dysfunction is connected to the extreme troubles of the economies that this market serves. What Pakistan should now steel itself for is a season of severe recession that is fast coming our way.

Published in Dawn, April 22nd, 2020