The oil industry has experienced a turbulent year, driven mostly by a global populace reluctant to travel by car or plane and widespread economic shutdowns. In April, oil futures for West Texas Intermediate dropped to under negative $25 per barrel.
Since then, barrel prices have managed to hover around $40, a price John Kilduff, partner with Again Capital, says is likely to change.
“If anything, they’re vulnerable to falling into the low $30s. The oil market is taking Covid the hardest of all of the asset classes out there,” he said. “Demand is just not coming back, especially for jet fuel.”
In a bid to adapt with decreased demand, the oil industry is slashing production efforts. Royal Dutch Shell, one of the largest oil companies in the world, is attempting to shift money normally devoted to oil production toward renewables, according to Reuters.
“We had a great model but is it right for the future? There will be differences, this is not just about structure but culture and about the type of company we want to be,” said an unnamed senior Shell source.
Furthermore, a recent poll from the Wall Street Journal found that a group of ten major investment banks doubted that oil demand will increase before even the end of 2021. The banks estimate that “futures for Brent crude oil, the global benchmark, will average $53.50 a barrel in 2021’s fourth quarter. U.S. benchmark West Texas Intermediate futures will average $50.31 a barrel in the same quarter.”
In addition to coronavirus cases spiking across the world, President Donald Trump’s positive coronavirus case has led many to the conclusion that demand for oil may not recover.
"Everything has gradually got better, but aviation can't and I don't think the market has really factored that in that digital dimension to air travel,” said SEB head of commodity strategy, Bjarne Schieldrop. “Governments say no, insurers say no, companies say no, you can't travel. It's not a question of travelling less, it's about not travelling at all," Schieldrop said.
This drop will have widespread implications for the world’s economy. With total revenues for the oil and gas drilling industry coming to $3.3 billion in 2019, the sector comprises nearly 4% of the global economy.
One of the pandemic’s long-term effects may be expediting the growth of alternative energy.
On Wednesday, wind and solar producer NextEra Energy topped ExxonMobil as the United States’ most valuable energy company. At the market’s close, the company was valued at $143.8 billion, nearly $900 million more than Exxon and about $2 billion more than Chevron.
Where traditional energy companies have suffered through the pandemic, NextEra's chief financial officer Rebecca Kujawa said, NextEra has thrived.
"This is the best renewables development environment we've ever been in," she said.
A factor driving the development of renewable energy is international commitments to phasing out fossil fuels. China, the world’s most populous country, has committed to ending carbon emissions by 2060.
Consumer opinion on climate change and corporate social responsibility is also driving this change. A 2017 study found that 88% of consumers feel a larger sense of loyalty to companies that pledge support to social and environmental causes.
Analysts had hoped that coronavirus stimulus talks would help support domestic oil demand, however when Trump temporarily halted stimulus talks until “after I win,” market hopes tumbled.
Now, Trump says that if he is sent a standalone bill, he will sign it.
"If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now. Are you listening Nancy?" the president tweeted Tuesday night.
However, White House economic adviser Larry Kudlow said that it is “too close to the election" and there is "not enough time to get stuff done at this stage in the game."
To add insult to injury, oil producers in the Gulf of Mexico are preparing for the approach of Hurricane Delta, temporarily stopping production on the Louisiana Gulf Coast, where wind speeds are expected to reach between 74 and 110 miles per hour.
Whatever the future of US oil production, producers are hedging their bets and expecting future downturns.
“It looks really bleak right now. This was a bust for the ages,” said Kilduff. “The demand just isn’t picking up.”
About the Author
Elijah Labby is a graduate of the National Journalism Center. He has previously written for Broadband Breakfast, a technology and internet policy websit