The U.S. shale oil industry may collapse due to the sharp fall in oil prices because of coronavirus, a new influential report predicts.
The demand and price of oil tumbled due to the economic slowdown and has since begun to recover, but Australian think tank the Institute for Economics and Peace (IEP) warns a low price will affect political regimes in the Middle East, especially in Saudi Arabia, Iraq and Iran.
The impact of coronavirus may “result in the collapse of the shale oil industry in the U.S., unless oil prices return to their prior levels.”
Its annual Global Peace Index, published on Wednesday, analyses tension around the world and compiles an index of the most peaceful countries. It suggests the impact of coronavirus may “result in the collapse of the shale oil industry in the U.S., unless oil prices return to their prior levels.”
While the price of oil has begun to recover, on Tuesday analysts at Goldman Sachs warned in a note that the rise in the oil price has been overdone and forecast a drop in Brent crude prices to $35 a barrel, from around $43 a barrel, within weeks.
Shale oil is produced by fracking, the controversial process of pumping high pressure water and sand underground to fracture rock and release valuable new energy reserves known as shale.
The IEP report says that the combined weakness in commercial, travel and industrial activity led to a plunge in oil prices in global markets.
“These markets were already affected by an oversupply, emanating from Russia and Saudi Arabia who could not agree on production curbs,” it says.
But on a positive note it goes on to rank the countries most likely to stage a swift economic recovery in the wake of the pandemic, using four indicators to calculate this.
China, Indonesia, Russia, Mexico and Australia all emerge as best placed to facilitate a recovery because they have low unemployment rates, low dependence on international trade, low tax revenue relative to gross domestic product, and low central government debt as a proportion to GDP.
IEP founder Steve Killelea said: “COVID-19 is negatively impacting peace across the world, with nations expected to become increasingly polarized in their ability to maintain peace and security. This reflects the virus’ potential…