As the novel coronavirus continues to spread around the world, several countries have imposed strict quarantine measures, including limiting travel, causing a drop in the demand for oil.
Monday morning, the New York Stock Exchange and the Toronto Stock Exchange temporarily paused trading after the plummeting oil prices caused stocks to plunge at the market open.
How will this affect gas prices in Canada and how long will this last?
Here’s what experts say.
What’s going on?
Allison Mac, a petroleum analyst at GasBuddy, said as the outbreak continues, demand for oil across the globe has dropped.
“When you’re seeing a country like China, which is the second in demand for oil, basically locked down, there’s not a lot of gasoline being used in that country,” she said. “And because of that, there’s really no need for the oil.”
Allison said due to the decrease in demand, gas prices began to “trickle down” in mid-February.
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Dan McTeague, president of Canadians for Affordable Energy, said the COVID-19 outbreak has probably accounted for a 40 per cent drop in the price of oil, which in turn has given rise to a 15-cent per litre decrease on average in Canada.
What’s more, Mac said while the virus outbreak is the main factor affecting the price of oil and gas prices, a dispute between the Organization of the Petroleum Exporting Countries (OPEC) and Russia has also taken a toll.
“The coronavirus is the main thing,” Mac said. “And then the second thing is that there’s a dispute between two countries, Saudi Arabia and Russia, where they couldn’t meet a resolution about cutting back the production, because if you cut down the production, prices will not plummet as dramatically as it’s been.”
The price of oil sank nearly 20 per cent after Russia refused to roll back production in response to falling demand and Saudi Arabia signalled it will ramp up its own output. While low oil prices can translate into cheaper gasoline, they wreak havoc on energy companies and countries that count on petroleum revenue.
According to McTeague, another factor that has put pressure on oil prices was the series of rail blockades in solidarity with Wet’suwet’en Hereditary Chiefs last month, and Canada’s “inability to get a pipeline built.”
“That’s not a new story,” he said. “But it was certainly one that preceded slightly the coronavirus issue.”
How long will it last?
While Mac said it is hard to say how long this situation will last, Canadians can expect prices will continue to drop until Saudi Arabia and Russia can come to a resolution, and until the lockdown in China ends.
She said the current situation is “pretty unprecedented” because the virus is so widespread.
“Even back in the day with SARS, it was pretty much contained in the Asian countries,” Mac said. “Because this is so widespread and it’s moving so quickly, this is something that we haven’t seen before.”
McKnight echoed Mac’s remarks, saying the SARS outbreak in 2003 was not a “rapid, global phenomenon” like COVID-19 has become.
“We haven’t seen anything of a virus nature that has caused this sort of pandemonium in the marketplace and created new prices at the pump,” he said.
‘Bad news for consumers’
And, while gas prices are dropping, McTeague said the situation could be “bad news” for consumers.
Globally, Canada is the fourth-largest producer and fourth-largest exporter of oil and the energy sector accounts for more than 11 per cent of its gross domestic product.
McTeague said this makes things more difficult for Canada, because when its oil is significantly devalued, it means the Canadian dollar suffers.
“To see it’s languishing — it’s lost about a per cent in value — that’s important to recognize because all commodities, including oil and gas, food, mining, et cetera, are all affected disproportionately,” he said. “Meaning, the cost of living for Canadians rises because we price all of our commodities in Canada in U.S. terms.”
McKnight said the current situation is a “pretty good indicator” that the economies of Canada, the U.S. and the world are going to be affected by the outbreak.
“And it’s going to start showing up at the unemployment line,” he said.
But, not everyone seems to be as concerned.
In a tweet posted Monday morning, U.S. President Donald Trump said it was “good for the consumer.”
“Gasoline prices are coming down!” he wrote.
— With files from The Associated Press and The Canadian Press