Covid-19: Global Pandemic Affecting Oil, Toilet Paper & Economy - Essay Sample

Introduction

Due to the global pandemic that has affected most of the world’s countries, the global economy has been negatively affected. Covid 19 pandemic has left most of the Australians gripped as most of the items a running out of several staples. As reported by Nguyen (2020), one of the most affected things is toilet paper. Indeed most supermarkets in Australia have run out of toilet paper, posing a severe threat to the consumers, the users. Globally, the oil industry has dramatically affected with impacts of Covid 19. As discussed in this paper, some prices for the product are seen shouting particular times with factors behind it.

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Coronavirus pandemic continues to spread worldwide, raising concerns as people have been living in isolation in fear of the spread. Consumption for some products has overdone as many people buy sanitizers to help curb the spread. Recently in Australia, supermarkets are running out of tissue papers. This has raised many questions, as Siebert (2020) thinks that other consumers are accumulating toilet papers and other scarce items to resell at a higher price to desperate customers. In 2020, the projected revenue for tissue paper amounts to $810, and research has shown this would, however, grow continuously with an annual rate of 0.9% in the next three years. So far, with the global pandemic effect, Australia has only got revenue of $31.7 this year (Nguyen, 2020). Australia produces two types of tissue papers; wet tissue paper and standard tissue paper.

Figure : Comparison between Standard Tissue paper and Wet tissue paper

The demand for tissue papers remains to be crucial for all Australia. The demand is high, all since the item is a necessity. New manufacturers have increased, bringing up improved varieties of tissue papers. Technology and innovation are enhancing the growth of the market, even outside Australia (Nguyen, 2020). Tissue paper demands mostly on the population of the country and the maturity of markets with high per capita consumption. As shown in the above figure, the demand and supply have been consistently stable for the years 2018 and 2019. The supply, however, has reduced forcing shout of prices for the commodity in the market. Due to the Covid 19 pandemic, the demand for tissue paper in Australia increased as the supply remained constant, causing a deficiency hence a rise in prices.

The causes for tissue paper shortage in Australia include many people buying absurd amounts of tissue paper in supermarkets in securing of unpredictable demands. Production of tissue papers in Australia is unstable, and tissue papers cannot recently be found in local markets. Covid 19, many people are working from homes, and most of the people do not use paper money (Nguyen, 2020). Instead, people are accepting the use of the roles of tissue paper as a means of payment. For instance, a cup of coffee will cost three rolls of tissue paper. Further, when people are working from home, implying most of the people are sheltering in the places rather than using the facilities while at work. This shows how the market supply has failed to deliver enough causing a deficiency.

The shortage of tissue paper in Australia has cause elasticity of demand for the product. The emergence of black markets to cover the deficient demand. The primary market has failed, and their consumers would look for an alternative to satisfy their needs. Australians are considering the use of newspapers and books to replace tissue papers. Another consequence is that people will be at a higher risk of spreading diseases because tissues help tom maintain hygiene. A shortage in supply causes a deficiency; hence the users will be at significant risk. In the long run, the industry has to pick up, and as the world continues to battle with the coronavirus pandemic. Australia can also opt to purchase from other countries like China, which produces in large amounts.

Problems in the Global Oil Market and Consequences for a Small Producer

Globally, the oil market has been recently faced with economic difficulties due to unusual conditions. One of the significant events affecting the international oil market is price conflicts between two major oil suppliers. The two nations are Saudi Arabia and Russia. Coronavirus pandemic is another cause of instability in the global oil market (Rakov et al., 2020). It has affected the sector of transportation and industrial production, which depends mostly on oil usage. With the reduction of operations among the industries, the demand for oil has dramatically decreased across the globe. The decline in order has resulted in a decrease in oil prices.

The war witnessed between Saudi Arabia and Russia is affecting the whole world despite the involvement of only countries. The nations have disagreements on how much oil to be produced with each having a different opinion. The war led to a dramatic jump of the oil prices within a day by more than 30% downwards (Rakov et al., 2020). The price frustration affected other nations, including Australia, with whom a significant market share was taken. It lost more than 140 billion USD worth of a market share. Small producers are recording severe consequences.

The transport systems rely on oil to run the machines and the fossils across the world while the oil is not produced in all the countries. The deficits in the big lead to the oil-producing nations to have a significant influence on economic activities globally. 35% of the global oil supply is controlled by a cartel of 14 countries which have made an association called The Organization of the Petroleum Exporting Countries (OPEC) (Rakov et al., 2020). The leader of the group is Saudi Arabia. It controls oil supply and prices since 1960. In 2017 a new super oil cartel emerged with ten members. All ten members were non-OPEC members. It joined with the OPEC nations to have a significant influence in the oil market with a supply of 55%. With the alliance, the control of the oil market stabilized. Russia was the leader of the newly formed cartel (Rakov et al., 2020). The recent outbreak of COVID-19 has imparted the corporation of the newly formed alliance with severe effects on global supply chains. Following the decrease in oil demand, the alliance members held a meeting in Australia to stabilize the market.

Saudi Arabia, the leader of the OPEC countries, suggested 1.5% of oil cut globally by all members of the new cartel. Russia disagreed with Saudi Arabia's idea of each country cutting oil supply by 1.5 million barrels daily. Saudi Arabia responded by cutting her oil prices significantly to attract markets of Europe, the US, and Asia. The plan of price reduction is also accompanied by an increase in the production of barrels daily from 9 million to 11 million (Rakov et al., 2020). The strategy was aimed at Russia. The move is an attempt to force the other oil-producing nations, especially Russia, to come back to the negotiating table. Failure to settle on appropriate prices among the OPEC+ countries has led to a much decrease in crude oil prices (Rakov et al., 2020). It has led to economic consequences to the Australia economy and stock markets. The prices have fallen by more than 50% and are predicted to fall further. The oil-dependent nations and firms are thus negatively affected, and others not able to meet the operating costs.

The desperate move to lift the oil prices brought the three major oil producers to agree 10% oil supply cut. Measures were taken by nations to slow the spread rate of Coronavirus have impacted the demand for crude oil and deteriorated oil prices (Rakov et al., 2020). United States shale industry is much affected, and the oil-producing nations are experiencing budget strains. OPEC+ members agreed on daily cut output by 9.7 million barrels for May and June months daily. The attempts are for preventing a further decrease in oil prices. Considering a single state-owned oil producer firm, operating in the global competitive market, with no international agreements, the firm is capable of recording high profits as its price taking. Before the Coronavirus pandemic, the firm was earning larger margins of profit due to a large market and demand for oil globally. Being a monopoly, the firm was able to set the quantity to supply and also prices for the market. It enabled the form to enjoy the profit margins desired or targeted.

The COVID-19 pandemic has led to oil demand decrease across the world as people are encouraged to stay at homes and avoid unnecessary movements. The efforts decrease the use of oil for purposes of transport both by road and air. Production in industries is affected by closure measures being implemented. Oil is not being used in the industries as before this, and the worldly oil aggregate demand decreased primarily (Albulescu, 2020). The fall of demand calls for a price reduction. The firm is forced to reduce oil production and also decrease the prices.

The actions of Saudi Arabia decreasing oil costs and producing more barrels daily led to grabbing the market share of a firm operating in the oil-producing state. The decrease in prices calls for increased demand from the market, and the firms with high rates lose customers (Albulescu, 2020). The firm following Saudi Arabia’s actions lost significant market share affecting the earnings. The low incomes are unable to cover the operating costs. With the prevailing conditions, in the long run, the oil producer shall close its operations because of continuous loss-making and will be ineffective for the government to support its activities.

Considering that the prices return to levels before the pandemic, the oil producer firm will begin to earning profits as usual in the long run. This means that cartel unions will have an agreement on the amount of oil to produce and the prices. The firm being a monopoly (no restrictions) will be able to set favorable prices that would fetch enough market to sustain its operations. Despite being a small producer, the firm enjoys the freedom of operating without restrictions and be able to adjust its prices and quantity supplied.

References

Albulescu, C. (2020). Coronavirus and oil price crash. Available at SSRN 3553452. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3553452

Nguyen, H. (2020). 4 Novel coronavirus hurts the Middle East and North Africa through many channels. Economics in the Time of COVID-19, 53.

Rakov, D., Guzansky, Y., & Fadlon, T. INSS Insight No. 1276, March 18, 2020 The Economic-Political Struggle behind the Energy Market Crash. https://www.jstor.org/stable/pdf/resrep23530.pdf

Siebert. K. (2020), Sense of Coherence Approach to Understand Humanity’s Responses to Covid-19 Pandemic and Adapting Roberts’ Crisis intervention Model to Counsel Patients.