The oil industry is considered to be one of the biggest industries in the world. In 2019, major countries like the US and Russia produced 33 million barrels per day. Its market value is expected to be well-beyond the trillion-dollar mark. It’s the lifeline of many other industries such as manufacturing, construction, and transportation. With so many people and industries reliant on this particular commodity, it almost seems impossible to imagine that it would ever collapse. However, the pandemic has shown that no industry is safe from the clutches of COVID-19.
For the first time in history, oil prices reached record lows during the start of the pandemic. The price of oil went down to $-37 per barrel. It came to a point when the industry needed to practically pay people to buy the commodity. What caused such a disaster, and what did the pandemic have to do with it?
Storage Wars
Before the start of the pandemic, people were buying commodities every day. Consumption was at an all-time high, and it seems that everyone was willing to buy more than what they can consume. However, this all changed when the pandemic started.
When quarantine protocols were implemented in many states, commodities were limited to things that made people survive. Many of people’s budgets went into food and utilities. It was the time when the oil industry realized that no one needed their oil. So the industry prepared and stored its products in various locations to weather the disaster. However, storage wasn’t enough. It came to the point that onshore oil storage was 85% full all over the world.
Oil tankers weren’t allowed to shore and store their cargo. The reason for this was that the production of oil was still the same as it was way back before the pandemic. But since no one was buying it, there was a massive surplus of the commodity, and the world didn’t have the space to store so much oil because other industries needed the space as well.
Shutting Down Production
One way that the industry handled the crisis was to lessen oil production. Production of oil in the US alone reduced by one-fifth of its average production. The Organization of the Petroleum Exporting Countries (OPEC) agreed to lessen oil’s overall output by 10 million barrels. There were even talks of destroying a couple of million barrels in hopes of opening up space for new ones.
Eventually, the transportation of oil and gas became the main priority of the industry. Everyone started to look for new places to store oil.
Everyone in the industry was praying that eventually, things go back to normal. People would start buying the commodity once again. Many oil companies braced themselves for the eventual debt that would accumulate as the pandemic goes on.
Restarting the Industry
Eventually, strict quarantine protocols were lifted. Travel was once again part of people’s agenda, and oil was back on people’s list to buy.
However, the surplus is still there. Millions of barrels are still left unconsumed, and oil companies are on the brink of collapsing. But it wasn’t as bad as it was before.
After controlling the pandemic’s blow into the industry by storing and shutting down production, many OPEC countries have normalized production by the end of last year. This was to anticipate the predicted recovery it will experience again this year. China was at the forefront of this recovery.
After many months spent on lockdown, the country’s need for oil jumped-started the industry’s recovery. Many individuals have started to buy the commodity as industrial sectors have started to work again. Prices have normalized throughout the last few months as more and more countries have started to restart their economies.
The Future of the Oil Industry
The future of the oil industry is vague. No one knows what will happen to the industry after such a devastating blow. People think that it won’t recover from it and that new companies will rise to replace old ones. However, experts believe that the oil industry will inevitably recover from the damage done by the pandemic and grow more prominent than before.
It was found that the oil industry’s losses were only at 8% by the end of last year, compared to the 25% losses it received during the start of the pandemic. Many companies had to resort to massive layoffs to stem the tide aside from looking for new places to store their inventory.
Additionally, predictions have shown that the losses it will experience this year will only be at 4%. From there, the industry is predicted to recover and grow once again.
