Question

In a structured paragraph or two, argue that changes in demand are the main reason why crude oil future prices have collapsed.

Answer 1

With the covid pandemic affecting the economies globally, there have been many changes in demand for goods and services. With lockdowns and businesses being shut down, the Demand for no essential commodities has reduced. These have also resulted in standstill of the economies which directly impacted the demand for crude oil.

Owing to lockdowns, the demand for oil has reduced dramatically which shifted the demand curve to left and reduced the prices and quantity. Since this change is seen over a large number of economies, the demand reduction is more than normal and hence the price has also succumbed to extreme low rates.

Even as the oil supplying countries are reducing the supply of oil, still the supply is more to meet the existing demand. This has also resulted in collapsing of crude oil future prices and hence the less demand is responsible for the collapse in prices.