Energy Market: Petroleum

Over decades the oil and gas industry has experienced significant ebbs and flows related to oil price.  Each episode triggered by a variety of events some of which are listed below:

• Global supply and demand
• Organization of the Petroleum Exporting Countries (OPEC) and their ability to set production targets for its members
• Natural Disasters
• Storage Capacity

In 2020, the world experienced an unprecedented pandemic, Covid-19.  The pandemic dramatically affected every industry in the United States, most notable, the oil and gas industry.  The oil and gas industry experienced what we call, “The Perfect Storm.”  This event triggered a historic oil price drop, which resulted in a negative oil price.  This significant drop in oil price and the effects of Covid-19 sent the market into a tailspin, leaving several oil and gas companies in financial distress therefore jeopardizing the industry’s ability to recover without restructuring.  This drop in price was the result of several factors:

• Global demand reduction due to the governmental mandated quarantine order for all nonessential employees and travel restrictions put in place to reduce the spread of Covid-19.
• Geopolitical tension among OPEC and OPEC+ countries and their unwillingness to reduce production targets to a level that would not flood the market allowing price to remain at a sustainable level.
• United States production continued to be robust therefore keeping storage capacity high.

Econ One recognizes the importance of understanding the trends and the associated ripple effects in the market that ensue due to oil price fluctuations.  This energy sector dashboard tracks trends from 2015 to present highlighting various components that are affected by oil price fluctuations. This dashboard provides data related to the following:

• Crude oil price
• Rig count trends
• Oil and Gas industry bankruptcies
• Crude oil consumption
• Gasoline, diesel, and jet fuel usage changes due to Covid-19

Crude oil price trends from 2015 to present.

As crude oil price declines, the oil and gas industry is forced to prioritize portfolio projects, which could lead to a decrease in the number of rigs utilized.

Sustained low oil price leads to financial distress and bankruptcies across the global oil industry, with those companies invested in US shale being hit particularly hard.

Gasoline, Diesel and Jet Fuel Usage Changes Due to Covid-19: 

• Gasoline: Due to Covid-19, gasoline consumption has decreased significantly due to governmental mandated stay at home orders.
• Jet Fuel: Travel restrictions were implemented as the virus transmission numbers increased, therefore decreasing jet fuel consumption.
• Diesel: With most people being confined to their homes, diesel consumption increased as the demand for goods skyrocketed therefore causing a surge in the transportation of freight to ensure that the consumer needs were met.