COVID 19: IMPACT ON THE OIL INDUSTRY

COVID 19: IMPACT ON THE OIL INDUSTRY

- April 26, 2020

According to the United Nations report, oil production poses significant public health risks and environmental damages to the land and marine ecosystems. Oil wells, production pollution, oil spills, and oil waste dumping are major causes of disruption in the wildlife and habitat. All the accessory structures used to gather and distribute oil such as pipes are very disruptive to the natural habitat. Many plants have been difficult to grow because of the contaminated soil and many species have been exterminated or classified as endangered species because of the pollutants resulting from oil and gas extractions. During the 2010 Gulf of Mexico oil spill by British Petroleum (BP), which to date is the largest marine oil spill in the history, more than 170 million gallons of oil flooded into the Gulf after the explosion of Deepwater Horizon oil rig. The subsequent consequences on humans and wildlife were enormous and are still affecting the region. Many species in the fish and wildlife population were exterminated in the region as the ecosystem changed with inevitable public risks for the residents as well. The fishing industry which was a vital part of the economy in the region took a massive drop in numbers, and according to the U.S. Bureau of Ocean Energy Management, the commercial fishing industry lost between $94.7 million to $1.6 billion in the aftermath of the disaster. The increasing needs for oil and oil production has caused governments to bypass certain laws regulating the environmental sector and wildlife protection. There is no doubt that the global economy needs oil production and delivery to fuel its various sectors and branches. But shouldn’t there be a balance and quest for sustainable sources of energy to palliate the indisputable need for energy in the market economy? How much oil is too much? Shouldn’t we increase research into renewable sources of energy that are “CO2 free energies” and environmentally safe and accessible at low cost?
The advent of Covid-19 and stay-at-home orders to reduce the spread of the virus have caused a decline in the usage of oil related products such as gasoline in the world economy. More specifically, the stay-at-home orders enforced globally have caused airlines to shut down their operations, and the decrease of commercial and personal ground transportation have significantly reduced gasoline consumption with less people going to work or flying for business/pleasure. Based on economic theory, when the supply of goods and services exceed the demand, there is an automatic drop in price until an equilibrium is reached to stabilize the market. Specifically, to the oil industry, the resulting effect and immediate impact is the decrease in oil demand while oil tanks remain full due to the lack of market demands. Global demand for oil is so low that on April 9, 2020, the Organization of the Petroleum Exporting Countries (OPEC) members rang the alarming bell and agreed among each other to reduce oil production by 23 percent of their potential in order to stabilize the market. Joint supply cuts are necessary in times of low demand to keep the crude oil price stable for all the members. As a result, a historic production cut agreement was signed between OPEC and its allies to cut 10 million barrels per day offline during the pandemic crisis and gradually scale back the numbers. “Covid-19 is an unseen beast that seems to be impacting everything in its path,” OPEC Secretary General Mohammad Barkindo said at the meeting. “For the oil market, it has completely up-ended market supply and demand fundamentals since we last met on 6 March,” he added. According to AAA, there are more than 12 states currently selling gas for under $1/gallon with the national average gas price at $1.82, down 6 cents from a week ago. The report also added that the national average this time last year was $2.83. What a drastic contrast and change of events. Fuel-savings app GasBuddy also informed the consumer market of the states that are currently practicing gallon price below $1 including: Arkansas, Colorado, Iowa, Kansas, Kentucky, Michigan, Mississippi, Missouri, New York, Ohio, Oklahoma, Virginia, and Wisconsin. The current low crude oil prices have not been seen in over half a century according to the expert analysts and they are worried that prices might continue to drop in response to the alarming coronavirus pandemic news. The positive news amid the coronavirus deadly outbreak and massive devastation of the economy are two folds:

  • The nightmare for oil producers has turned into a sense of relief for the consumers with more “bang for one’s buck” at the pump.
  • More supply than demand for oil has decreased the oil production by OPEC members and allies, which helps decrease the toxic chemicals and pollutants associated with oil extraction and distribution. By reducing their outputs to prevent prices from dropping further, OPEC members and allies are contributing indirectly to the reduction in global gas emissions
    Although these signs of relief on the consumer’s pocket and the environment are temporary, at least it has helped shed light on the need for drastic changes in the oil industry and the need for renewable sources of energy. “It would be irresponsible to downplay the enormous global health challenges and loss of life as a result of the COVID19 pandemic,” said World Meteorological Organization (WMO) Secretary-General Petteri Taalas. “However, now is the time to consider how to use economic stimulus packages to support a long-term switch to more environmentally and climate-friendly business and personal practices.” Best practices in the aftermath of the coronavirus pandemic should include a gradual shift and transition from oil into cleaner energy sources that are beneficial to the environment and preservation of human health.

“Renewables 2019: Global Status Report”, (Paris: REN21 Secretariat, 2019), wedocs.unep.org/bitstream/handle/20.500.11822/28496/REN2019.pdf.
www.opec.org Retrieved from https://www.opec.org/opec_web/en/press_room/306.htm
www.wmo.int Retrieved from https://public.wmo.int/en/resources/coronavirus-covid-19/climate-change

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