COVID-19 is taking a huge, greedy bite out of global energy demand. The seriousness that world governments have shown in their defensive and offensive actions combating the virus may be keeping us safer than we would otherwise be, but it is reducing our need for oil to amazingly low levels. The virus, coming as it did, on the heels of the oil price war between Saudi Arabia and Russia was just what we didn’t need.
Energy demand and oil storage
The United States, and indeed most of the world, are now staring down the pipe at an oil-storage shortage. No one seems to know exactly how much storage is available. The only real consensus is that it is running out – fast. Running out of oil storage, like the price of oil, can affect many areas.
According to an article in S&P Global, “…an overflowing storage situation could shut down pipelines, shut in wells and destroy billions of dollars in value that would take years to recover.” Oil market expert and former BP statistical modeler Mark Finley said, “If storage fills, there’s another shoe to drop on the price of oil. Because when that happens, then it’s not the economics of storage that sets the price, it’s the economics of stopping somebody from producing a barrel of oil.”
Is it too late to reverse the curse?
There is a slight glimmer of light at the end of the COVID-19 tunnel. Several areas of the country are reporting some good news for a change. As of April 4, New York Governor Andrew Cuomo said the number of New York fatalities has been “effectively flat for two days.” He also stated the total number of hospitalizations and ICU admissions were down. New Jersey, Washington and California are likewise showing improving numbers. The question on the minds of everyone now is whether or not this is a fluke or a trend. If it is a trend, will it be enough to improve energy demand, and in turn ease the oil-storage problem?
There may also be a slight gleam of hope issuing from OPEC and Russia. There is a virtual meeting scheduled for Thursday, April 9, between the two to discuss an output reduction to improve oil prices. Canada and Norway have suggested they would be willing to cut production, leaving many wondering if the U.S. will follow suit. President Trump is keeping his thoughts on the subject largely to himself. He has said he hasn’t ruled out the possibility of asking U.S. producers to cut back production if it means resolving the oil price war. “Maybe we will, maybe we won’t. We’ll have to make that decision,” he said. The possible placing of tariffs seems a much more likely scenario to get the two to get along. We will know more after another G-20 meeting scheduled for April 10 to discuss energy markets.
Will energy demand return to “normal”?
Reducing the glut of oil now depends on OPEC and a virus. Both are unpredictable entities. But things are indeed looking up with both, albeit cautiously. But will it be enough to return us to normal energy demand, and if so, would normal be enough to get us out of this oil storage hole we’ve fallen into?
Even if the economy were allowed to come out of hibernation tomorrow, it wouldn’t truly start moving upward again until people feel safe enough to get back to work. Even when that happens, getting back to work will never mean what it once did. The days of traveling to meetings and commuting to the office are very likely gone for good, along with the energy demand they would require. Employers were thrown into a sink or swim situation, and they came to the surface realizing employees don’t need to be in one building. They don’t even need the building. With this in mind, it will take longer to return to “normal” energy demand than we ever imagined. But, like virus models, it’s too soon to tell for sure what is waiting around the corner.