India’s COVID-19 Update – April 2021

1)     The arrival of second wave of COVID-19 in India was duly expected but the momentum with which the wave has ravaged the country is beyond contemplation. The daily infection numbers are harrowing with peak of second wave shooting up by at least 250% of the peak last observed in September 2020. India alone accounts for almost 10% of the total COVID-19 infections at global level.

2)     The Government of India has pulled up its socks announcing lockdowns and mobility restrictions across different states. Further, the eligibility criteria for vaccination drive was also expanded to accommodate people above 18 years of age. However, with the current shortage observed at different vaccination centers, it will be quite a remarkable feat if India manages to pull it off effortlessly.

3)     Currently, medical infrastructure in India is only equipped to inoculate only 3% of the country’s population. India is able to vaccinate only 3 million people daily, which comes to 0.2% of the Indian population. With this speed, it is nearly impossible to inoculate entire country by November as previously assured by the Government

4)     Indian healthcare structures are crippled with mounting cases and hospitals are widely reporting shortage of patient beds and oxygen cylinders. There is significant amount of news pouring in of companies beefing up their oxygen production. However, main issue lies in providing the required logistical support. In 2019, India’s oxygen requirement was 700 metric tons per day. This figure eventually spiked to 2,800 metric tons during first wave in 2020. The second wave reported further spike in demand to the tune of 5,500 metric tons per day. Furthermore, an oxygen tanker can carry only up to 15 tons of oxygen. About 3 hours each are required for filling the tankers and transferring them to hospital’s storage units, apart from 24-36 hours required in-transit. Therefore, it is imperative that more tankers are added to existing portfolio to strengthen the logistics and cater to overwhelming demand.

5)     The Government has connected internationally with governments in United Kingdom and Germany for procurement of oxygen cylinders. They are also attempting to fast-track the regulatory controls for procuring the international approved vaccines.

6)     As we approach the end of April, the state governments should to stay clear of lockdown-infused solutions and instead come up with more creative approaches to curb the spread of virus. Micro-containment zones, rapid testing and efficient frictionless vaccination delivery can gradually lead to the peaking infection rates into a nose-dive.

 * The opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

 

Unlocking India’s AI potential

 

The digital transformation has changed the way the business leaders look at company’s operations. With data being a strong back-bone of every decision made in corporate board-rooms, companies are striving towards achieving AI-powered data models to achieve the coveted strategic direction. Artificial Intelligence (AI), being a strong disruptive force in digital revolution, is a combination of technologies which are aimed to mimic highest level of human intelligence.  A study conducted by McKinsey showed that highest incorporation of AI was towards increasing revenues by optimizing inventory-management, pricing, promotions, demand forecasting and customer-service analytics. As a concept, artificial intelligence is not a modern-day concept. Greek, Chinese and Egyptians contemplated on inanimate objects coming to life as intelligent beings. However, the term ‘artificial intelligence’ was officially coined in 1956 during a conference at Dartmouth College in United States. The scientist John McCarthy opined that in future, human thinking abilities can be simulated by computer algorithms which like, human beings can learn based on their own experiences. This led to a revolutionary disruption as many technology companies and academic institutions across the globe invested their resources in building strong AI-powered programs. Eventually, AI started to feature in gaming, medical and research domains. Globally, there are several strides in field of AI with countries like China and United States channeling billions of dollars to fund research to sharpen their technological prowess.

To join this bandwagon, India’s think tank ‘NITI Aayog’ drafted a National AI strategy in 2018 to focus on unlocking opportunities in economy’s key focus areas. The panel has identified healthcare, agriculture, education and smart mobility to be key economic engines to remodel using latest AI tools. Having said that, implementation of AI programs can reach far beyond these sectors. With that, I will run through some sectors to highlight some potential opportunities for AI and developments achieved so far

Healthcare:

Healthcare in India is complex especially in rural and neglected corners of the country where the basic wellness facilities are denied due to a host of issues. India’s Ayushman Bharat initiative promises a healthcare insurance for secondary and tertiary hospitalization across wider coverage. There is strong opportunity to implement technology solutions to increase the healthcare coverage, by introducing digital medical records to be accessed remotely.  Deep machine learning algorithms can help in clear diagnosis and identify future outcome of diseases, leading to further prevention. Artificial intelligence, being what it is, can learn from the millions of patient case studies and sharpen its diagnostic abilities over time. In 2018, Microsoft and Apollo Hospitals had entered into a collaboration wherein Microsoft would provide the appropriate technological models to derive insights from Apollo’s patient data. As mentioned earlier, there is a strong shortage of medical professionals in rural areas and leveraging digital solutions can help in a robust disease management.

Agriculture:

Despite our strong efforts to move away from agri-based economy towards other industries, 60% of Indian population is involved in agriculture and allied activities. With this, every year, agricultural domain faces multiple issues including land degradation, deteriorating water tables, soil infertility and pest resistance. Hence, it is imperative to relook at this segment as a potential opportunity to bring in artificial intelligence and machine learning solutions.  Furthermore, startups are recommending robotics and drone-based solutions to analyze soil types and weather in order to run in under AI-ML models to derive actionable insights for the farmers. Use of technology can enable farmers better access to new farming techniques, insights, markets, appropriate credit and insurance. In 2019-20, Indian agri-based startups raised more than USD 1 billion through a total of 133 deals. An adequate support from the government can help more startups emerge within the ecosystem.

Education:

I have to admit that education is one of my personal favourites where I would love to see ground-breaking digital solutions for enhanced learning experience. Like major segments, majority of issues faced by India’s education landscape are focussed in rural areas. With an unavailability of adequate infrastructure, teachers are majorly faced with a heterogeneous group of students having variations in age and learning abilities. To add to this, Indian education system is heavily leaning on rote rather than on application. It is common knowledge that many students drop out due to unavailability of funds, poor educational infrastructure and unwillingness to learn. E-learning solutions have been an emerging trend in India but its reach in rural corners is questionable. AI may not completely replace teachers but it can be an enabler to manage a heterogenous group. The e-learning solutions equipped with strong statistical algorithms can help customize the learning and help student learn at their own comfortable pace. Statistics coupled with AI can also help predict outcomes for student drop-out rates, helping the e-learning solutions draft an alternative learning plan for students to follow. The AI-ML technology can also be used to create an interactive gamification experience for students to learn conceptually.

Smart Mobility:

Nowadays, India’s urban population needs smart mobility solutions to enable a convenient and faster transport mechanism. Transport is spine for India’s urban economic development and India needs strong solutions for an enhanced connectivity. Autonomous vehicles are something India is not ready for immediately. However, automotive companies can invest significantly in developing suite of autonomous technologies as a potential alternative for the future. These technologies, even though not implemented on immediate basis, can prove to be of an economic advantage to the country. Such technologies can act as a stage for further international partnerships with industry and academia. AI technology can also address the impending issues of traffic congestions and road fatalities by employing algorithms to divert the traffic in areas of heavy bottlenecking. Shared mobility being the new trend today can be an initiative for startups to come up with AI platforms which aid ride sharing and travelling in faster and cheaper manner

With the threat of coronavirus pandemic looming over businesses, it is essential for corporate and government to relook, remodel and restructure its digitalization initiatives. The Government has partnered with National e-Governance Division, Ministry of Electronics & IT and Intel India to roll-out a program for youth to act as a guiding force to develop an innovative tech mindset. The Union Ministry of Communication and Information Technology set the stage for young growth companies to showcase their AI-based platforms to the world. The challenge was termed as AI Solution Challenge, aimed for increasing the out-of-box thinking catering to key growth sectors of the economy. In October 2020, Telangana government locked synergies with International Institute of Information Technology, Hyderabad (IIIT-H), the Public Health Foundation of India (PHFI) and Intel India to launch Applied AI research center to develop AI-based use cases to solve population-scale issues. These are handful of initiatives which the government has brought to table to foster growth and collaboration in field of AI.

However, despite the throttle, there are several obstacles on the journey to a holistic AI implementation across target segments. Currently, there are handful of institutes which are specialist in developing AI platform. The Government needs to identify the potential academic institutions and energize them with appropriate funding, partnerships and degrees of freedom to experiment on AI algorithms. Also, for a successful deployment of AI across sectors, we need a robust database of raw data. Currently, data collection mechanism in our country is extremely poor and the Government needs to take proper steps to enable robust aggregation of live data. That said, even if we have to assume a smooth implementation, the fear of unknown is expected to persist with AI expected to take over several employment opportunities. Eventually, this will definitely demand the employees to upgrade their skillsets and capabilities. 

Ultimately, it’s just the question of are we ready yet?

 

 

 * The opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

The Hottest Trend in the Financial Systems : Special Purpose Acquisition Company

One of the hottest trends on the financial markets is formation of a special purpose acquisition company (SPAC). Companies wanting to undergo listing may choose to divert from the traditional IPO route and associate themselves with the SPACs. But what are these SPACs and how do they function?

1)     Essentially, SPAC is a shell company, established with a sole objective to raise funds from the retail investors through an IPO, only to make an acquisition into the future. Thus, a SPAC is sponsored by institutional investors, private equity, hedge funds, CEOs and high net-worth individuals

2)     The private companies chose SPAC route for listing since the process ensures access to faster liquidity which otherwise may be denied. Besides IPO takes 1-2 years to complete. SPAC offers faster listing with process completion in approximately 5-6 months.

3)      As per data from Dealogic, the US SPAC IPOs have grown exponential from USD 13.2 billion in 2016 to USD 34.6 billion in 2020, registering a CAGR of 26.8%. Especially in the times of COVID, with a heightened need for faster liquidity, year 2020 has shown a rapid surge of 182% Y-O-Y in SPAC deals.

4)     This trend is slowly moving towards European markets as many US SPACs are focusing on acquiring potential targets in the region. This paves way for private companies with attractive valuations which are now looking to list themselves on the US stock exchanges.

5)     Furthermore, a red ocean is bubbling in the US markets with SPACs fighting hard to get to these lucrative deals. This has led to some newly formed SPACs to look beyond national frontiers into the niche markets. The Asia Pacific region is also emerging as a hot bed for SPACs with USD 2.4 billion raised in 2020 as against USD 613 million in 2019.

6)     However, there is a rising concern amongst the investor lobby that this bubble will eventually burst in the future. One of evident red flags is the fact that the SPACs need to hunt their potential targets within 24 months, failing to do so, will result in entire investment being returned to investors with interest. With deadlines approaching, SPACs may compromise over quality targets and simply acquire unfavored companies to avoid liquidation. Another measure cause of worry is that SPACs do not have a robust business plan conveying their way forward, resulting in strong ambiguity amongst the investors.

In my opinion, with too many investors fighting for a limited share of pie, it is clear that there will be a correction in the future. It is just the question of when. 

My most-recommended reads for 2020

 

The year 2020 presented us with a complete turnaround in the way we conduct our daily routines. COVID-19 pandemic slapped limitations and confined us inside our houses for extended periods of the day. It also paved way for many learning opportunities and since I saved significant time on my commute to work, I got a chance to revisit my old hobby with a full throttle – reading. With this, I have decided to enlist my 5 most-recommended reads of 2020. Over the course of time, I will try my best to build up this list further.

So here are my top 5 reading picks for the year 2020

1)     Surrender experiment (by Micheal Singer): When majority of the people stand by ‘hard-work’ as the only success mantra, former software programmer and a founder of mediation institute, Michael Singer devised an experiment which was a complete opposite to the hard-work theory. Named after the title of the book, Surrender experiment is an act of complete submission to the forces of universe and a corresponding faith that these forces will help manifest one’s desires. Formerly a hippie and drug addict in his teens, Micheal Singer brought a complete metamorphosis to his life by taking to intense meditation practices and getting into frequent flow states. This book will initiate the readers to act of surrender and spiritual practices which can lead to fulfilment of one’s goals. 

2)     Sapiens (by Yuval Noah Harari): Amongst my highly recommended list, this book deserves multiple reads. Yuval Noah Harari’s Sapiens helps the reader discover the ancient roots of human evolution. It is not a factual book reiterating the previously discovered theories of biologist and anthropologists. Instead, it challenges the facts we think we know about being human. This book will surely tickle the curiosity of the readers covering a wide spectrum of topics including the development of human cognition, agricultural revolution, advent of money, emergence of religions, inception of war and much more.

3)     Business Sutra (by Devdutt Pattanaik): Being the former Chief Belief Officer at Future Group, Devdutt Pattanaik has a tremendous knack of weaving lessons learned from the mythological stories into business management. Picked up as a subject in Indian School of Business, Business Sutra is strong reminder of the fact that management is deep-rooted in Indian mythology. Indian style of doing business is empathetic and largely focusses on employee satisfaction rather than increasing the shareholder value. This book narrates short stories from Indian mythology and applies these first-principles to the modern-day corporate

4)     The Buddha and the Badass (by Vishen Lakhiani): Vishen Lakhiani, the founder of the famous personal development company – Mindvalley, had written this book with an objective to introduce spirituality to boost performance at workplace. As the title suggests, Buddha is a person who navigates through his environment with fluidity, nailing complex projects with a smile on his face whereas the Baddas is the modern-day innovator and disruptor who breaks new normal ever single day. The book sets up the codified actionable steps which can help the reader merge his own Buddha and the Badass to grow at the workplace. 

5)     The Power of your subconscious mind (by Dr. Joseph Murphy): To be honest, this was not the first time I have picked up this book. In fact, I had read it multiple times before and honestly, I have even lost the count. This book is one of the most underrated and my personal favorite when it comes to touching upon the concept of ‘Law of Attraction’. This book conveys the mechanics of the human mind and how one can tap into the infinite potential of the subconscious mind to access abundance. Backed up by strong research, this book explains how our current life events are shaped out of our own mental structures and how we can use tried-and-tested methods to alter the reality around us.

A Brief Overview on Shinzo Abe’s 'Abenomics'

 

Last week, Prime Minster of Japan, Shinzo Abe announced his exits from the incumbent post citing health reasons. This decision has sparked off questions in the Japanese political landscape as to who will be his successor. Nevertheless, the successor will be subjected to an economy which is burdened by an aftermath of the COVID-19 pandemic. The GDP has declined by 27.8% at an annualized rate and the economy is on the verge of facing a recession. The Prime Minister had introduced his package of economic reforms called the ‘Abenomics’ in 2013 in order to usher in a new era of economic growth. With the current state of the economy, this post tries to look at the main highlights of Abenomics and the effect it has made on the economy.

In early 1990’s, Japanese economy suffered a real estate and stock market bubble burst. Undoubtedly, there were mistakes made by the Bank of Japan (BOJ) as it reduced the money supply in late 1980s bringing the equity rally to a halt. The equity market collapsed by 60% from 1989-1992 and as the BOJ raised its interest rates, the real estate prices plunged by 70% until 2001. The government started to slash debts and decide to relocate the manufacturing activity overseas. This led to a huge drop in the wage growth along with price of goods leading to a deflationary mode. Natural calamities (Tsunami, earthquakes) along with its aging population added to the increasing stress in economic machinery. Between 1991 and 2003, GDP of Japan grew by just 1.14%. Against this backdrop, Prime Minister Shinzo Abe introduced ‘Abenomics’ which was expected to serve as a caffeine boost to wake the economy from its decades-old sleep. Along with the growth, Abenomics was aimed to be a therapy to shift its dependency from China, which was growing its domination in Asia.

As drafted by Prime Minister Shinzo Abe, Abenomics had a three-arrowed strategy. Firstly, fiscal stimulus package was introduced in 2013 with measures amounting to 20.2 trillion yen. The package was concentrated towards critical infrastructure spending (earthquake-resilient roads, bridges). These measures were beefed up later in 2014 with Abe injecting more 5.5 trillion yen. Post 2014 elections, economic measures observed an increase of 3.5 trillion-yen worth of funds. The second arrow points towards a flexible monetary policy. The BOJ adopted string of quantitative easing programs to inject liquidity in the economy. The value of assets held by the BOJ as against GDP of Japan increased more than 70% during that period. This figure is mammoth as compared to assets held by European Central Bank and the Federal Reserve which stood below 25% of the GDP. The third arrow of Abenomics is for structural reforms including enabling a conducive regulatory environment for business, slashing corporate tax rates and increasing participation of the women workforce. Along with this, Abe had huge expectations from the Trans-Pacific Partnership (TPP) which was formulated by the U.S President Barack Obama to advance US strategic interests in Asia. Its agenda was to expand U.S trade and investment in the Asian region. Japan had tremendous hopes from this partnership to drive its structural reforms. Prime Minister Abe wanted to open up the trade corridors for Japanese exports in the US and reduce reliance on Chinese markets. Without the Trans-Pacific Partnership, Japan would have been sucked in the overpowering Chinese hegemony in Asian region. After Donald Trump’s unexpected withdrawal from the agreement, Japan’s best interests were are at stake. Trump’s exit put stress on Abe to resort to reductions in tariffs and exercise policy support in agriculture segment

After its implementation, Abenomics showed its wonders as the headline inflation hit 3% above BOJ’s target of 2%. Japanese yen collapsed dramatically as the BOJ kept injecting fresh yen in the economy, paving way for exporters to attract higher returns. However, eventually in 2017, the growth became tepid as the household spending decreased by 0.1% and real wages declined by 0.2%. Abe was known to push corporations to increase their pay by 3% but to no avail amidst rising competitiveness. Abenomics hasn’t been effective when it comes to achieving its inflation figure at 2%. As of 2019, the World Bank reports the inflation to be at 0.5%, way below the target. The political leadership led Abe also wanted to impose its deregulation framework to expand the markets. This deregulation model led to an increase in profits. However, the share of income for labour and capital investment went downhill. One of the aspects which Abenomics succeeded is on its unprecedented efforts in curtailing the gender inequality. Female representations across the leadership, middle-level and low-tier management roles showed significant improvements. Evidently, the female workforce following marriage or after delivery of their first child increased from 30% to 48% in 2019.

As every economic objective, Abenomics had its share of ups and downs. However, the new successor to Prime Minister Shinzo Abe will face a rapidly shrinking economy at a pace last observed during the World War II. Even though, he has the economic tools left by Abenomics which are required to put the economy back on the track, only time will tell how efficiently the successor can use the fundamentals of Abenomics to reap the economic benefits.

 

 

* The opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

 

 

 

 

Under the lens – Banking sector – June 2020

A country’s economic growth trajectory is always determined by the stable operations of its banking system. Since last couple of years, India’s banking structures are strained with rising rate of non-performing assets, issues related to governance, and heightened cases of fraud and negligence. This post attempts to trace the crisis faced by the banks right from its origins to the current times.

I

n order to peel the layers beneath the prevailing banking crisis, we have to start from the time when nationalisation of banks took place in 1969. Since farmers and capitalists had a long-standing reputation of non-repayment, the public sector banks observed a receding capital with compromising profitability and operational autonomy. Situations improved after nationalization as the deposits grew by 18% on an average between 1969 to 1991. However, eventually, the focus of the banks shifted from mandatory investments in Government securities to competitiveness and profitability. Furthermore, during the turbulent times of the 2008 financial crisis, banks gave out large loans to ailing companies showcasing an ideal case of ‘irrational exuberance’. The banks went on an aggressive lending spree without an appropriate due-diligence and relied on a feasibility reports by the promoters of the borrowing entity. Besides, the projects that were funded were highly leveraged in nature and banks did not hold on adequate promoter equity as collateral. To add to this, banks resorted to ever-greening in order to advance newer loans which ensured that the non-performing assets remain undetected on the auditory radar.

Pronob Sen , the former chief statistician of India stated that “short tenures for bank chiefs meant that they decided to evergreen the loan and pass on the problem to the next head and this cycle continued”. In 2015, Reserve Bank of India decided to conduct asset quality review to discover the rot underneath the lending mechanism and thereby clean the balance sheets. Post demonetization in 2016, banks lent short-term loans to shadow banks like ILFS (Infrastructure Leasing & Finance Services) who used them to fund long-term projects. An asset-liability mismatch coupled with exposure to bad loans sent ILFS tumbling into a state of default.

Cut to the present-day scenario, banks are still struggling to get out of its hurdles which have been aggravated with the advent of the novel coronavirus. To begin with, the banks have gone under the scissors of the rating agencies.  Along with 11 banks, the rating agency Moody’s has downgraded local and foreign currency deposit ratings of HDFC Bank and SBI to Baa3 from Baa2. The downgrade is attributed to continual periods of low growth and hurdles faced by the banks in curtailing the risks arising with the pandemic. The gross NPA is expected to worsen to 11.3% - 11.6% from the 8.3% figure as of March 2020 which will impact the credit provision of banks and push its earnings into a decline. There is a concept of a ‘bad bank’ which is being floated in the culture which will serve the purpose of a reconstruction company. However, the group of experts have been split into two parties: for and against, in regards to the feasibility of the business model of the ‘bad bank’ in these uncertain times. 

Since May 2020, personal loans have declined by 2.46% including credit card loans and housing loans.  The automobile sector has suffered immense losses with shutdown of its manufacturing processes and sales outlets and huge inventory piling up. With this, bank exposure to automobile sector is also expected to add to the piling debris of the bad loans. As per the FIDC (Finance Industry Development Council) data , in FY18, the total number of loans disbursed to the auto sector was around INR 69,712.72 crore, and in FY19 the figure was around INR 74,339.93 crore. With this, banks are expected to develop contingency plans and make additional provisions for the bad loans which are expected to make their place into the system. With rising strain on wages and consumer discretionary spending, retail loans are expected to take more hits in subsequent months. In order to suppress the effects of the COVID-19 pandemic, Reserve Bank of India (RBI) has planned to remove the Minimum Holding Period (MHP) for securitization of loans and deregulate the price discovery process.

In the post-COVID India, the banks need to reinvent themselves in order to stand up to their relevance. It is evident that when the dust settles, there will be a rise in discretionary spending of the consumers which will aid the much-required boost in loan disbursement. Technology will play a significant role in transforming the banking operations. Banks should invest in technologies to enhance inclusivity across the inaccessible corners of the country. Taking some much-needed lessons from the sudden disruption due to coronavirus, banks should reconfigure their operating models to reduce human intervention for customer on-boarding and credit appraisal. With increasing smartphone penetration across the country, enhanced customer experience is the key to establishing strong banking networks. It is no surprise that the millennial prefer using smartphone technology to manage their finances and get personalized notifications to stay updated continuously. Thus, banks should collaborate with the technology companies in order to capture the newer opportunities created by COVID-19.  

* The opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

Changing times in the oil industry: 1900s to today

The COVID-19 pandemic has left businesses and markets across the world in a shattered state. However, the first wounds of the coronavirus outbreak were felt by the oil economies of the world as the major oil producers were grappling to find a sustainable solution to the diving oil demand. This post I try to navigate the oil economy through its history to the current situation, highlighting the concerns and the potential solutions

Oil price is known to be an important metric governing the economic and financial health of the countries and corporations. Fluctuations in the oil prices are hugely influenced by the supply & demand dynamics and speculations in the financial market. Throughout the early 1900s, oil has proved to be an important resource to suffice the increasing demand for power and automotive industries. Its presence can, however, be traced back to 600 BC when oil was first noticed by Chinese as a valuable fluid seeping out of the ground.  Back then, Chinese used to transport the oil with the help of bamboos. With newer technologies entering the landscape, drilling techniques caught momentum as wells as deep as 800 feet were dug to extract oil. The first such oil well was dug by Colonel Edward Drake in Pennsylvania in the year 1859. Two years later, Spindletop, Texas had its first oil field in the state which previously depended on farming, lumber and cattle ranching to fuel its economy. These discoveries invited a rapid revolution in the corporate world as companies started to look at oil as a potential form of business. Vital additions to technological breakthroughs led to oil emerging as a major energy source with Standard Oil controlling 90% of the refining capacity of the United States in 1904. These were eventually succeeded by Exxon Mobil, Shell and BP.

These oil majors made numerous discoveries of oil reserves in the Middle Eastern countries: Kuwait, Libya and Saudi Arabia. After demand for oil gained steam, companies realized that controlling strategic oil reserves is the route to gaining dominance over the world. With this, seven companies formed a cartel in order to collectively take constructive decisions regarding oil and thus the alliance named Seven Sisters came into existence. By end of 1960s, Seven Sisters controlled 85% of the global oil reserves. The leadership in Middle East observed Western influence in the region as an act of aggression and began asserting their authority over oil reserves. Post renegotiation of business terms with the Seven Sisters, an alliance named OPEC was formed to enhance policy-making regarding oil reserves and provide financial aid to set the stage for the member countries. The year 1970 saw huge energy crisis with countries like US, Canada, Europe, Australia and New Zealand faced petroleum shortages and elevated prices. This warranted a restructuring activity to the oil markets and the first energy derivative trading emerged as an investment alternative on the trading platform.

Cut to the present scenario, oil markets in 2020 have faced a serious damage due to the coronavirus outbreak. On Thursday 30^th April 2020, West Texas Intermediate (WTI) fell to USD 17.20 per barrel and Brent Crude fell to USD 24.30 per barrel. At the commencement of the year, both these prices were around USD 60 per barrel figure. The rapid collapse in the prices is attributed to lowering oil demand coupled with an increased inventory. Russia and Saudi Arabia, two leading behemoths in oil industry, had locked horns in a price war in March. Furthermore, Saudi Arabia engineered a collapse in their prices when Russia rejected its proposal to slash production output in order to bring a balance to the plunging oil prices. With manufacturing operations across the world at a standstill, the oil demand is not expected to pick up anytime sooner. Reacting to Thursday’s numbers, traders dumped their June contracts for oil futures sighting a bleak future ahead. On the inventory front, the global conventional oil storage having combined capacity of 3.4 billion barrels will be exhausted by May end. Besides, the major delivery point in Cushing, Oklahoma in United States has filled up to 2/3^rd of its capacity amounting to ~59.7 million barrels. The United States’ Strategic Petroleum Reserves along the Gulf coast also has filled up to 89% of its capacity (613.5 million barrels of oil in 713 million barrel reserve).  With empty storage spaces heading towards exhaustion, major oil producers are looking at other alternatives like supergiant tankers, rail freight carriages and salt cavern to store their oil barrels.  They have even considered the option of buying ships in order to fulfil their storage capacity. With a dark and bumpy road ahead, oil producers have reached an agreement to slash the production output by up to 9.7 million barrels per day in May and June. 

The energy markets showed its excitement to the piece of news with WTI and Brent posting a weekly gain on Friday closing. With no certainty to when the pandemic will see it closure, it is apparent that the oil markets will continue to observe volatility. However, there is light at the end of tunnel as low prices will help rebalance the markets when stronger demand ushers in after global operations resume.

* The opinions expressed in the article are personal and do not represent the opinions of the organization I work for *