Nature vs. Industry: The COVID Response
By Reetesh Sudhakar and Leon Savage, 5/29/2020
Coronavirus, Oil and a Plunging Economy
Since the beginning of 2020, the COVID-19 outbreak throughout the United States and the rest of the world has taken a significant toll on the oil industry and the economy at large. The rapid spread of this virus has sent oil prices into a downward spiral, negatively affecting the industry in two ways. First, travel and transportation restrictions limit the use of fuel, slowing supply chains as workers are quarantined in their households. Second, the impact of the stock market plummet in the US is generating a negative long-term projection for demand in the oil industry. As this general trend continues, the negative effects of COVID-19 will take their toll on the industry and economy.
In the span of one month, assessments of the impact on the oil industry spiked from a decrease in Chinese jet fuel consumption to a significant lag in global economic growth. Oil consumption has been predicted to decrease by 600,000 to 800,000 barrels per day during Quarter 1. This leads to a significant drop in oil prices, showing that oil traders have little reason to sell or hold stocks. Currently, projected cuts in global production could be as high as 1 million barrels per day, leading to a shock in supply and eventually a lack of market confidence.
As the stock market rallies, the continual spread of COVID-19 has put severe downward pressure on oil prices throughout the economy. While warmer winters, minimal economic growth, and larger stockpiles contributed to a decrease in prices during 2019, the pandemic has shocked prices. As a result of the drastic change in prices and demand, the Organization of the Petroleum Exporting Countries (OPEC+) must consider further reductions in production.
Not only has the pandemic impacted oil prices, but it has also led to massive layoffs within companies in the industry. This is primarily due to workers not having access to facilities in order to continue working, and production plants have had a significant decline in production as a result of travel restrictions. This leads to a significant increase in unemployment and compensation claims, making a sharp blow towards stretched governmental funds.
As a potential solution, countries want to decrease oil production even further, which would be detrimental for individuals: the decreased prices drive consumers, who account for 70% of economic activity in the United States. Decreased production would increase oil prices.
These reductions especially harm smaller producers, who relied on existing debt and higher projections for prices to increase sales and infrastructure. However, the opposite has occurred, forcing layoffs and facilities to shut down as a result of the virus. Fewer wells are being operated and rigs are idled until they are required. Current projections predict that the industry will suffer as companies wait to resume operations.
While economists argue that swift fiscal policies will prevent continual market downturn, there are no programs or actions set in place for these unprecedented times, causing shocks towards the oil industry worse than the major price collapse seen in 2014. While the decreased prices are beneficial towards the general population, the increased price volatility can be extremely dangerous for the oil industry.
While there are still great opportunities for corrections in the economy, a long term solution for the economy and industry will need to be explored. Otherwise, the real possibility becomes one where the virus that’s largely unknown creates a hostile financial environment.
Since the beginning of 2020, the COVID-19 outbreak throughout the United States and the rest of the world has taken a significant toll on the oil industry and the economy at large. The rapid spread of this virus has sent oil prices into a downward spiral, negatively affecting the industry in two ways. First, travel and transportation restrictions limit the use of fuel, slowing supply chains as workers are quarantined in their households. Second, the impact of the stock market plummet in the US is generating a negative long-term projection for demand in the oil industry. As this general trend continues, the negative effects of COVID-19 will take their toll on the industry and economy.
In the span of one month, assessments of the impact on the oil industry spiked from a decrease in Chinese jet fuel consumption to a significant lag in global economic growth. Oil consumption has been predicted to decrease by 600,000 to 800,000 barrels per day during Quarter 1. This leads to a significant drop in oil prices, showing that oil traders have little reason to sell or hold stocks. Currently, projected cuts in global production could be as high as 1 million barrels per day, leading to a shock in supply and eventually a lack of market confidence.
As the stock market rallies, the continual spread of COVID-19 has put severe downward pressure on oil prices throughout the economy. While warmer winters, minimal economic growth, and larger stockpiles contributed to a decrease in prices during 2019, the pandemic has shocked prices. As a result of the drastic change in prices and demand, the Organization of the Petroleum Exporting Countries (OPEC+) must consider further reductions in production.
Not only has the pandemic impacted oil prices, but it has also led to massive layoffs within companies in the industry. This is primarily due to workers not having access to facilities in order to continue working, and production plants have had a significant decline in production as a result of travel restrictions. This leads to a significant increase in unemployment and compensation claims, making a sharp blow towards stretched governmental funds.
As a potential solution, countries want to decrease oil production even further, which would be detrimental for individuals: the decreased prices drive consumers, who account for 70% of economic activity in the United States. Decreased production would increase oil prices.
These reductions especially harm smaller producers, who relied on existing debt and higher projections for prices to increase sales and infrastructure. However, the opposite has occurred, forcing layoffs and facilities to shut down as a result of the virus. Fewer wells are being operated and rigs are idled until they are required. Current projections predict that the industry will suffer as companies wait to resume operations.
While economists argue that swift fiscal policies will prevent continual market downturn, there are no programs or actions set in place for these unprecedented times, causing shocks towards the oil industry worse than the major price collapse seen in 2014. While the decreased prices are beneficial towards the general population, the increased price volatility can be extremely dangerous for the oil industry.
While there are still great opportunities for corrections in the economy, a long term solution for the economy and industry will need to be explored. Otherwise, the real possibility becomes one where the virus that’s largely unknown creates a hostile financial environment.
The Benefits of a Pandemic
While the global coronavirus pandemic has certainly damaged both individuals and nations, there have been underlying benefits to the world around us, namely the overwhelmingly positive effects on the environment. With people travelling only for necessities and otherwise staying home, the immediate impact on the natural world can be seen across the United States.
New York City, an epicenter for the crisis, is a perfect example of this. According to NASA, the northeastern U.S. has seen atmospheric levels of nitrogen dioxide air pollution decline by 30% in March compared with the same period last year, a radical change sparked by the rapid decay of transportation. Researchers at Columbia University also saw carbon monoxide emissions fall more than 50% below normal levels in New York City as a result of a plummet in vehicle traffic. New York City is the cleanest it has been in decades, all thanks to a terrible virus ravaging the planet.
Reduction in typical modes of transportation have also shown radical changes in how we view employment. Even with a sharp economic downturn causing many to lose their jobs, the general amount of both nitrogen dioxide and carbon monoxide emissions have decreased exponentially, showing the benefits of a human free environment. Alternative modes of transportation have been popularized now more than ever with bikes and walking becoming more frequent as a safe way to stay healthy amidst the panic of the pandemic. As for flights, the TSA screened fewer than 100,000 people at airports across the U.S. twice this week in comparison to the normal 2.3 million a day. The last time that the United States had averaged less than one hundred thousand passengers was in 1954, exhibiting the clear transportational impact that COVID-19 has caused.
The United States is not the only nation experiencing environmental benefits from COVID-19. China’s emissions fell by over 25% in the beginning of the year due to the orders to stay home, and coal use also fell by over 40% since the last quarter of 2019.
The speed at which governments have shut down public activities and enforced rules is noteworthy. A single virus has created a global momentum to prevent deaths and save the earth in a matter of weeks. That shows, if nothing else, humanity can quickly adapt to whatever future issues come. While climate change may not take lives as fast as a virus can, it will be sure to catch up if individuals and nations do nothing to stop it. Coronavirus, or COVID-19, has shown, if nothing else, the improvements to air quality and the adaptability not just of the United States, but the world has in response to global issues.
While the global coronavirus pandemic has certainly damaged both individuals and nations, there have been underlying benefits to the world around us, namely the overwhelmingly positive effects on the environment. With people travelling only for necessities and otherwise staying home, the immediate impact on the natural world can be seen across the United States.
New York City, an epicenter for the crisis, is a perfect example of this. According to NASA, the northeastern U.S. has seen atmospheric levels of nitrogen dioxide air pollution decline by 30% in March compared with the same period last year, a radical change sparked by the rapid decay of transportation. Researchers at Columbia University also saw carbon monoxide emissions fall more than 50% below normal levels in New York City as a result of a plummet in vehicle traffic. New York City is the cleanest it has been in decades, all thanks to a terrible virus ravaging the planet.
Reduction in typical modes of transportation have also shown radical changes in how we view employment. Even with a sharp economic downturn causing many to lose their jobs, the general amount of both nitrogen dioxide and carbon monoxide emissions have decreased exponentially, showing the benefits of a human free environment. Alternative modes of transportation have been popularized now more than ever with bikes and walking becoming more frequent as a safe way to stay healthy amidst the panic of the pandemic. As for flights, the TSA screened fewer than 100,000 people at airports across the U.S. twice this week in comparison to the normal 2.3 million a day. The last time that the United States had averaged less than one hundred thousand passengers was in 1954, exhibiting the clear transportational impact that COVID-19 has caused.
The United States is not the only nation experiencing environmental benefits from COVID-19. China’s emissions fell by over 25% in the beginning of the year due to the orders to stay home, and coal use also fell by over 40% since the last quarter of 2019.
The speed at which governments have shut down public activities and enforced rules is noteworthy. A single virus has created a global momentum to prevent deaths and save the earth in a matter of weeks. That shows, if nothing else, humanity can quickly adapt to whatever future issues come. While climate change may not take lives as fast as a virus can, it will be sure to catch up if individuals and nations do nothing to stop it. Coronavirus, or COVID-19, has shown, if nothing else, the improvements to air quality and the adaptability not just of the United States, but the world has in response to global issues.