As the pandemic sweeps across the world, a giant wrench has been thrown into the ever-turning gears of the economy. With the order to stay at home, America itself has seen a 47% drop in personal passenger travel (3/28-4/3 INRIX). While environmentalists rejoice, the oil industry has gone up in flames. Starting the year at $60 a barrel, the crushing lack of demand spirals it to its apotheosis on Monday, April 20th, where one barrel cost -$37 (NYTimes).
Graph of crude oil prices since 2000. Source: The New York Times
The world has an estimated 6.8 billion barrels of storage, but oil storages are already filled by 60%. To counteract the problem of the dwindling space, countries such as Saudi Arabia and Russia have made deals to cut production by 10%. This cut in production is also meant to stabilize the market. Should this cut in production bring the supply of oil down to meet the demand, then the price can bounce back, but this change will take months to take effect in the market.
With these changes to the oil industry, the question at hand is how will this affect the economy? No event has ever brought oil down to a negative price and this is detrimental to the world economy. With the world economy being 3.8% oil and gas alone (Investopedia), many nations are affected by these prices. Most notably, countries that have a high export of oil. Saudi Arabia, Russia, Iraq, and the US are the top 4 distributors of oil.
This drop in price also affects many workers. Scott Sheffield, chief executive of Pioneer Natural Resources says that if the price of oil stayed around $20 a barrel for a while, 80 percent of the hundreds of independent oil companies would be forced into bankruptcy and 250,000 workers would lose their jobs. This projected unemployment would only add to the 4.4% unemployment rate from March 2020 (Bureau of Labor Statistics) as well as damage the US oil industry. However, for now, Sheffield says that $30 a barrel will leave many companies crippled, “But at least the industry will survive”(NYTimes).
In the path of technological advancement, oil is the fuel that has driven us into modern times. With the upping of technology and the subsequent dreadnoughts and war machines that have resulted, oil has become a powerful resource sought after by superpowers. Acquisition of oil has been the center of numerous social, political, and economic conflicts and has remained the lifeblood of the technological era.
Discussion:
But do we want the oil industry to survive?
Could this finally be an opportunity to pursue alternative energy?
Once we emerge from the pandemic, what aspects of life will stay the same? What will change?
Global Themes:
VI E. Explain the interconnected nature of global problems and their impact on economic development
Could this finally be an opportunity to pursue alternative energy?/Once we emerge from the pandemic, what aspects of life will stay the same? What will change?
ReplyDeleteAlthough this would give a good opportunity to explore alternative sources energy, I doubt that we would be able to develop and switch to new kinds of technology efficiently enough to make oil irrelevant. If alternative energy is found, I also think it is unlikely that everyone switches to using it immediately. Once the pandemic ends, I can imagine that a majority of people will default to how things were before and continue to use oil. However, I think that the longer the pandemic lasts, the more likely we are to see some alternatives to oil as more and more people are left unemployed.
I agree that this likely won't change our energy sources too much as the only reason oil prices dropped so dramatically was because of a drop in demand. When demand begins to return, prices will also begin returning to their original state. Also, if anything, the economic crisis will likely only stunt the development of expensive alternatives to oil as oil is a form of energy that's already well established. Economically, if there is no incentive to turn to alternative forms of energy, then no one will, especially if oil prices don't skyrocket.
Delete2nd prompt
ReplyDeleteYes I think it would be an opportunity for people to use a different type of energy, but I don't think the majority of the people will change. I think the oil industry is already integrated into too many things in the world for one to turn away now. One example is cars. Although there are cars that run on electricity now, the majority of cars I see on the road are still running on gasoline. I don't think many are going to take this opportunity, and stick with the original. Also, the title states that this was the first time ever for this type of an event, meaning that it's not common that oil prices drop; unlikely for people to change their minds for this one occurrence.
JOhnny h
per:5
1st Question. We do want the oil industry to survive. The world is so dependent on oil that if we stop producing it then the world couldn't function. The oil and gas industry in America takes up 8% of America's GDP. If we abolished the oil industry then tens of millions of Americans would lose their jobs and the economy would take a significant hit. Many cities have been trying to use cleaner forms of energy by encouraging the use of electric cars and using solar energy. It will take hundreds of years until America transitions into fully natural energy methods.
ReplyDeleteCould this finally be an opportunity to pursue alternative energy?
ReplyDeleteI think this would be a great opportunity to pursue alternative energy because honestly the earlier we switch to alternative energy the better for the environment. The main problem with changing to alternative energy would be the upfront costs of switching. New plants would have to be built and old ones would most likely be destroyed. Not only the sources of the energy need to be increased but ways to consume that energy would need to be increased as well. For example if the country tried switching to electric vehicles it most likely would be very difficult because of the high costs of getting an electric vehicle. One way that the government could possibly pursuade people is to create an incentive like a tax break if you buy an electric vehicle. I believe that the government is already doing something like this but it would most likely need to have a bigger effect in order to persuade some people to spend their money switching to alternative energy.
But do we want the oil industry to survive?, Could this finally be an opportunity to pursue alternative energy?
ReplyDeleteI think we should still want the oil industry to survive. Even though the oil is bad for the environment, and the use of oil for energy is damaging to the climate, it is a resource that we have used for so long and is reliable for energy today. I agree that now is a great opportunity to look for alternative energy. We've seen what two months of lower pollution and carbon emissions have done for the climate, and now is a great time to think of solutions that will be better for the environment when COVID-19 cools down. Though these alternative energy solutions will take a long time to develop and produce. That's why we should still want the oil industry to stay alive. Because, while alternative solutions are being made, ideas that have already been produced won't be enough, and we will still need oil to produce energy for industries and everyday life.