Daniel Yergin, expert of the global energy and the vice chairman of research firm “IHS Markit” while talking about the outbreak of the coronavirus pandemic, says, “No one imagined a crisis of this scope.” Like so many other industries, coronavirus has also impacted the oil industry remarkably. The oil market is facing such a historic oil crisis due to the current situation. Petroleum Industry that is providing more than 50% of the world’s energy is in crisis. Oil is the global product, and its decreasing price is causing a significant recession in all the countries, especially those whose economy only based on the oil business. During the immediate lockdown, the areas where the access to the markets is not possible, the oil barrel price already fell below zero. Global issue and the oil crisis.
Corona Virus and January 2020 oil crisis
The crisis due to the coronavirus started at the start of January 2020 in China. China considered the most significant developing market for the world’s oil suddenly shut down due to the coronavirus. Due to this lockdown situation, the oil demand steeply declined by about 6 million barrels/day at the start of this year. According to the IHS market’s calculation, the storage space for the oil is full that resulted in the fall of oil prices and shutting down of the oil wells by the oil-producing countries. After spreading such devastation throughout the world, even the coronavirus outburst is not ending but moving into the next and more harmful phase.
Corona Virus outbreak creates the threats of poverty and the and instabilities of the political structures of the countries from Iraq to Venezuela (Countries that are dependent on oil sales). And these countries are fighting with the dual crisis at a time, and the least remedy they thought could help is changing the policies of the country. These policies don’t seem useful to beat the present-day crisis. The countries like United States, Russia, and Saudi Arabia can produce oil at low cost due to the ease of oil exploration from their oil field.
These countries are the largest oil-producing countries in the world but still are facing financial imbalance as the oil demand across the globe had a steep drop. In other countries, oil is present at deep depth, and the oil is produced at a high rate. Therefore, they can’t afford to drill oil without any earning. And many companies deciding to shut their wells. The oil crisis is real.
This week the oil price in the USA historically falls below zero. This fall can be marked on the calendars as there was never such a decline in the oil sector observed ever in the world. It is supposed the oil producers must pay now to export their oil to different countries. This situation will force the USA to negotiate with other large oil-producing countries. Like Russia and Saudi Arabia to limit its oil production during these days. Jason Bordoff, professor of Columbia University and director of the Center on Global Energy Policy. He says that the energy of any country is not independent or dominant. Global issue and the oil crisis.
Still, it is in link with the other countries. He added that the effect of the global market on the United States has exposed. Therefore, when there is an increase in the oil prices the United States feels pain, and when oil prices crash. Then the US needs to contact Moscow and Riyadh about this matter (As stated in the New York Times).
Corona Virus impact on economy
Corona Virus generated terror and doubt globally, targeting the world’s economy and stabilize the financial structure. Just after one and a half months of the first case of the coronavirus w reported by the WHO. The oil sector started facing the detrimental impacts of this pandemic attack. Saudi Arabia sells oil, that causes 20% drop in the price of oil on a global level in a day.
Different companies have taken the steps and limited their activities during this time for their survival. OMV that is an Australian Petroleum company, states that Europe is not affecting by the rise in oil prices. Except for the cost of the kerosene on which their travelling and industries are dependent. To solve this issue and cope with their kerosene demand, they prohibited air travel to reduce their kerosene use. According to the report of the International Energy Agency, the prediction tells us that oil demand is going to decrease. It will decrease by about 90,000 barrels/day. Therefore, it counted as the most significant drop of decades. Global issue and the oil crisis.
Norwegian Petroleum Company
Equinor, the Norwegian Petroleum Company, reported the coronavirus in one of the workers on the offshore of North Sea. The spokesperson of the company had announced that their employer had sent to heir home. Therefore, is no new case has reported in the crew working on the rig. Equinor also told its downstream workers to work from home and restricted their travelling. Not only one company but all the other companies also limited travelling. Shell was the first company that announced this travel restriction, whereas Chevron Petroleum Company of the United States was first to assign work from home to their downstream staff.
These types of activities may control the death rate but cannot help in avoiding economic loss. But every oil company is trying to survive this dark period as much as possible by different preventive policies. Global issue and the oil crisis.