COVID 19: GOVERNMENT RESPONSES TO OIL PRICE

Abstract

The outbreak of the coronavirus (COVID-19) has aroused global interest and it had a significant impact on the global economy. The majority of the countries have implemented lockdown regulations and social distancing policies to prevent the spread of COVID-19, which has an unprecedented impact on the oil and gas market. Hence, this scenario motivated us to study how government responses aimed at banning the spread of COVID-19 affect oil prices? To answer this question, this study examines the Movement Control Order imposed by the government to responses the oil prices in Malaysia. The study emphasizes the period from the start of January 2020 to July 2020 when the coronavirus began spreading into Malaysia. We empirically investigate the impact of government responses on both BRENT and WTI’s oil prices. The findings report that the additional one-day stay at home requirements cause a reduction of 29% and 37% in the closing price for BRENT and WTI’s oil prices respectively. Workplace closing results in a 5.7% and 14.3% reduction in the closing price for BRENT and WTI correspondingly. In contrast, international travel controls, restrictions on gatherings, and debt or contract relief for households have a positive relationship with both oil prices of BRENT and WTI. The results of this study might assist the government and investors to understand the impact of Malaysia's government responses to COVID-19 on oil prices.