Oil and Gas and the Economy in 2021

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Oil and Gas and the Economy in 2021
Ncov 2019 covid 19 coronavirus with double exposure of blurry falling financial graphs and planet hologram. Concept of global financial crisis due to coronavirus pandemic. 3d rendering

What began last March as a brief relocation from the office to a work-at-home setting eventually transitioned into something much more. The weeks bled into months, ultimately extending over the course of the year for many folks. The brake on economic activity resulting from the COVID-19 pandemic sapped more out of GDP than any other event since the Great Depression in the 1920s and 30s, and far more than the Great Recession in the mid-2000s.

While the vaccine research, production and distribution response occurred in record time, it was not enough to rescue a large number of small businesses, many of which will not return with the same ownership or business models. Large traditional retailers were hard hit as well. Sporting events, concerts and other indoor venues weathered anemic attendance. So far, the surprises have been numerous and pervasive, to say the least.

Federal relief was disbursed unevenly and somewhat haphazardly, with many large businesses receiving payouts not intended for them. Further, despite government relief efforts to stem the carnage, new weekly unemployment claims remained stubbornly high through the year’s end.

Many workers never returned to offices, a feature of the pandemic that will continue to burden the commercial sector. At the same time, the need for home offices caused housing prices to spike unexpectedly.

Non-perishable goods — typically exhibiting predictable demand patterns — became nearly impossible to keep in stock. Hand sanitizer, canned goods and toilet paper flew off store shelves. Hospitals failed to maintain sufficient quantities of personal protective equipment, not to mention ventilators — difficult to produce machines that are expensive to hold in large numbers if left idle.

The decrease in both economic and non-economic activity took its toll on the oil and gas industry as well. In March and April, regular automobile commutes and air travel came to a near standstill. For the first time ever, oil prices even went negative as a result of excess U.S. inventory and lack of storage capacity. By summer, prices rebounded somewhat. Though energy demand will almost certainly pick up further later this year, only modest improvement seems likely for 2021 overall. Hopefully, by autumn, the bulk of the pandemic’s effects will be a thing of the past for energy and other industries.

The key reason global oil markets did not collapse altogether was due to the agreement by OPEC and Russia to curb production through most of 2020. Similarly, low prices forced independent and major U.S. producers to cut back output. Although WTI inched up above $45 a barrel late last year, there is no guarantee the benchmark will continue to rise, or worse, that it won’t go into freefall once again.

The upshot of these events portends a sea change in supply chain theory taught in business schools. The nature of supply chains — previously focused on cost and efficiency to the exclusion of nearly everything else — will instead emphasize resilience, with organizations seeking out local and regional sources of product. Community stakeholders such as city managers, mayors, county judges, economic development directors and regional planners will demand greater visibility into the critical supply chains serving their constituents. Due to the accumulated complexity evolved from management theory over the past few decades, no single entity has a clear picture of all the moving parts across varied product supply chains.

Though 2021 appears poised for improvement, it’s not clear that things will ever go back to normal as we knew it. Instead, as the global population reaches eight billion and keeps climbing, future pandemics likely lie ahead. Hence, notions of living space and personal distance, as well as the value of critical resources such as energy, food and water will figure more prominently in the minds of policymakers and other leaders at all levels for the remainder of the 21st century.


About the author: Thomas Tunstall, Ph.D., is the senior research director at the Institute for Economic Development at the University of Texas at San Antonio. He is the principal investigator for numerous economic and community development studies and has published extensively. Dr. Tunstall recently completed a novel entitled “The Entropy Model.”

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