Cheap crude to be a new normal, oil income-dependent economies will have to diversify: IMF’s chief economist Gita Gopinath

As the global oil markets remain under intense pressure, it seems like there is no quick recovery for the global crude prices from the historical fall witnessed recently. Global crude prices are likely to remain subdued for some time, as predicted by the International Monetary Fund. The global crude prices recently witnessed a historic fall with crude futures trading in negative for the first time. 

“We can say for sure that this uncertainty and volatility around oil prices will continue for the next several months. IMF’s forecast for oil prices is around $35 per barrel for 2020-2021 but just as a pandemic is so uncertain, the recovery will also depend on a lot of factors. Even if the prices recover, no one is expecting crude prices which were there before the virus”, said IMF’s chief economist Gita Gopinath in an exclusive interaction with WION.

Historically low oil prices also translate into an existential crisis for the countries depending on crude export as the main source of revenue. “For countries that depend on oil export, it is a double whammy. They are dealing with both the health crisis and the financial crisis. Low crude prices are what we would call a permanent shock and the countries will have to learn to adjust to this permanent shock. This will have implications for their fiscal situation, but this is also the time for countries to diversify from oil dependence, ” Gita Gopinath added.

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As physical US crude grades fell into negative territory for the first time in history, Mexican, Ecuadorean and Venezuelan grades indexed to them also traded negative for the first time.  Latin America exports some 5 million barrels per day (BPD) of mostly heavy crude. 

The International Monetary Fund earlier said the economic fallout of the coronavirus pandemic, combined with other problems in recent years, meant Latin America and the Caribbean would likely see “no growth” in the decade from 2015 to 2025.

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