The Interaction between Natural Disasters and Oil Prices

In late 2019, a new virus appeared in the Chinese city of Wuhan. It spread rapidly from China to other countries around the world, and at the time of writing, on 15 May 2020, there were more than four million infected and more than three hundred thousand people killed by it. In order to prevent infection and the rising number of deaths, Governments have introduced strict rules: most manufacturers and businesses, with the exception of those whose products are mandatory for human life, must be temporarily shut down and people must stay at home without an emergency need to leave. This has reduced consumption, production, money flow and stopped part of the economy for an indefinite period of time. Economic changes have affected the prices of stock indices and commodities. One of the noticed signs of change in the economy was the price of oil, whose futures began trading at a negative price in late April. In our study, we identify factors that affect to or correlate with oil prices during the coronavirus pandemic. We found that the total number of people infected increases the volatility of oil prices in the short run, and that there is a correlation between oil prices and the U.S. air quality index, which suggests that changes in the number of cars on the road and average time people spend driving a car are the main contributing factor in reducing the demand for oil and hence the decline in oil prices.