Home COVID-19 Coronavirus Pandemic Drives Oil Industry into a Tailspin
Coronavirus Pandemic Drives Oil Industry into a Tailspin

Coronavirus Pandemic Drives Oil Industry into a Tailspin


By David E. Hubler
Contributor, In Homeland Security

Anyone who’s old enough will remember the gasoline crisis of 1973. “An oil embargo imposed by members of the Organization of Arab Petroleum Exporting Countries (OAPEC) led to fuel shortages and sky-high prices throughout much of the decade.”

Start a Homeland Security degree at American Military University.

The shortages resulted in long lines of cars at the pumps and angry consumers. “In the three frenzied months after the embargo was announced, the price of oil shot from $3 per barrel to $12.”

(By convention, the “price of oil” is the going per-barrel price reflected in a futures contract for the following month.)

Just a year ago, USA Today reported that declining oil prices were a good sign for the coming Memorial Day weekend. “While gas remains expensive in certain pockets, including $4-per-gallon in California,“ the national average was falling and was “unlikely to hit $3 per gallon for the fifth straight calendar year.“

A Deflationary Moment that Surpasses Anything Seen in Most People’s Lifetimes

But on Monday, the benchmark price for a barrel of crude oil in the United States fell to negative $37.63. “We’re in a deflationary moment that surpasses anything seen in most people’s lifetimes,” Neil Irwin, a senior economics correspondent for The Upshot, wrote in The New York Times on Tuesday.

The collapse of the May futures contract for West Texas Intermediate crude oil, Irwin wrote, “shows how the shock of the coronavirus crisis is rippling through all sorts of markets and making them behave strangely.”

He added, however, that “the broader takeaway is that the Covid-19 crisis is an extraordinary deflationary shock to the economy, causing the idling of a vast share of the world’s productive resources.”

Over the past six weeks, the demand for oil and oil products has collapsed. Far fewer people are driving, so they need less gasoline, which has driven down gas sales to under $2 a gallon in many places. Also, with airlines having reduced the number of flights because of a dearth of customers, airline companies are buying less jet fuel.

Last month the International Air Transport Association (IATA) predicted that global revenues would suffer losses of between $63 billion and $113 billion, “depending on whether—and how—the virus continues to spread or not.”

“Don’t let shortages of a few goods, like face masks or toilet paper, confuse the matter,” Irwin warned. “The consequences will almost surely persist beyond the period of widespread lockdowns.”

Global Benchmark Crude Fell below $0 for the First Time in History

Global benchmark Brent crude fell nearly 17 percent, one day after the U.S. benchmark fell below zero ($0) for the first time in history, the Washington Post reported Tuesday. “Brent crude was trading at $21.35 a barrel Tuesday after briefly falling below $20 for the first time in nearly two decades. The collapse was weighing on global stock markets, with Wall Street signaling big losses at Tuesday’s open.”

The collapse in oil prices “drives home the stark drop in economic activity around the world due to this virus,” John Kilduff of Again Capital told the Post. “That puts a fine point on what we are staring down here.”

Nearly 40 million Saudi Arabian barrels of crude oil are in route to the U.S. and will add to the tens of millions already in storage here. That delivery “is probably going to be the final dagger in the heart of the U.S. shale oil industry,” Kilduff said.

At the same time, the world’s biggest independent oil storage company reportedly “has all but run out of space for crude and refined oil products as a result of the fast-expanding glut that Covid-19 has created,” the Houston Chronicle reported.

“The available capacity on the oil side is almost completely sold out for our terminals,” Gerard Paulides, chief financial officer of Rotterdam-based Royal Vopak NV, told the Chronicle in an interview. “For Vopak, worldwide available capacity that is not in maintenance is almost all gone and from what I hear elsewhere in the world we’re not the only ones,” Paulides said.

The growing oil glut is likely to result in a further loss of jobs in the U.S. petroleum industry, pushing up already astronomically high unemployment numbers nationally.



Online Degrees & Certificates In Cybersecurity

American Military University's online cybersecurity programs integrate multiple disciplines to ensure you gain the critical skills and management practices needed to effectively lead cybersecurity missions – from government or private industry. Learn from the leader. American Military University is part of American Public University System, which has been designated by the National Security Agency and the Department of Homeland Security as a National Center of Academic Excellence in Cyber Defense Education.

Request Information

Please complete this form and we’ll contact you with more information about AMU. All fields except phone are required.

Validation message here
Validation message here
Validation message here
Validation message here
Validation message here
Validation message here
Validation message here
Validation message here
Validation message here
Ready to apply? Start your application today.

We value your privacy.

By submitting this form, you agree to receive emails, texts, and phone calls and messages from American Public University System, Inc. which includes American Military University (AMU) and American Public University (APU), its affiliates, and representatives. I understand that this consent is not a condition of enrollment or purchase.

You may withdraw your consent at any time. Please refer to our privacy policy, terms, or contact us for more details.