2020 may be one of the worst years to start with. First, we have COVID-19, and now we have a sudden crash in oil price by > 20% in a day. What is happening? What should I do?

What happened?

The world’s production has already gone down due to COVID-19 as workers are quarantined. Demand is low and hence, it makes sense to cut oil production to keep oil prices steady. However, OPEC and its allies failed to reach an agreement on production cuts in last week meeting. OPEC ally, Russia, also refused to agree to the proposed additional output reduction. Saudi Arabia subsequently announced massive discounts to its official selling prices for April initiating a price war. The oversupply on the oil production is causing oil price to tank.

Impact on the Macroeconomy

Theoretically, low oil price should help in economic growth as oil is a main source of energy powering the world’s production. Low oil price leads to cheaper production as well as lower inflation and...