How COVID-19 Triggered The Mother Of All Oil Crises

The COVID-19 pandemic certainly wasn’t the first historic crash or economic crisis for the oil and gas industry, and it (probably) won’t be the last. Four huge historic oil crises come to mind immediately: the 1980s oil glut which followed the gas lines of the ‘70s, the turmoil of the Gulf War, the 2008 financial crisis, and the ensuing oil glut of the 2010s. The only thing that’s consistent about oil markets is their very volatility. It’s a boom-and-bust business by nature. And yet, somehow, this time it’s different.  Oil markets and the energy industry as a whole have been hit by all kinds of crises and disasters in the last century. There was the Suez Canal crisis of the ‘50s, in which Egypt nationalized the pivotal waterway which controlled two-thirds of the oil used by Europe at the time of the conflict. The oil embargo of 1973, in which Arab members of OPEC imposed an embargo on the United States for their involvement in the Arab-Israeli War, leading to those aforementioned gas lines and gas rationing. Then the Iranian revolution caused the second global oil shock in 5 years, leaving consumers stuck in oil lines once again. But, according to oil giant BP, all of these momentous and market-changing moments “pale in comparison” to the havoc wreaked by the novel coronavirus pandemic. 

The supermajor oil company released its annual Statistical Review of World Energy on Thursday, and the document compiled data from the past year which led the company to describe 2020 as “a year like no other” with left indelible marks on the energy industry as a whole. The pandemic has led to the loss of 4 million lives at the very least, and those numbers continue to rise, with the number of reported cases (and scores more of unreported ones) totalling to well over 185 million. The economic toll has also been enormous, with global gross domestic product contracting around 3.3 percent in 2020 --  “the largest peacetime recession since the Great Depression,” according to reporting from CNBC. 

While the pandemic has left a lasting mark on nearly every industry and economic sector out there, few have been as hard-hit and re-shaped as the energy industry. 2020 started off with a huge drop in global oil demand as industrial sectors around the world slowed down or closed down, and cars sat idle in driveways as people retreated inside to shelter in place. This oil market volatility soon led to a spat between the OPEC+ members of Saudi Arabia and Russia as to how to respond to the challenge, which devolved into an all-out oil-price war and severe supply glut which put global oil storage at capacity and made owning oil a liability -- so much so that on April 20, 2020, the unthinkable happened and oil prices went negative. The West Texas Intermediate crude benchmark plummeted well below zero, bottoming out at nearly negative $40 per barrel, a historic first which would leave waves in the global oil market that are still reverberating today. 

But the massive change in global oil demand and industrial activity also had huge positive externalities. In their report, BP notes that the 2020 global health crisis resulted in falling rates of primary energy and carbon emissions at levels that we haven’t seen since World War II. World energy demand is estimated to have dropped by a whopping 4.5 percent and worldwide carbon emissions resulting from energy use contracted by 6.3 percent -- massive changes by any historical measure. 

A new, greener world seemed possible and the clean energy transition was catalyzed as green energy had a gangbusters year and world leaders in all corners of the globe got serious about meeting emissions goals and working renewables and energy efficiency into their economic recovery packages. Solar power had its biggest growth year ever, and as a whole the renewable energy sector emerged from the pandemic’s economic turmoil “relatively unscathed.”

Some of that hope, however, that the pandemic would provide enough perspective and enough of a break in the momentum of industry and status quo to seriously change the trajectory of global greenhouse gas emissions and global warming, is falling away as the world rather hastily returns to business as usual. While the hope of the green revolution is fading, however, it’s more urgent than ever before. Hopefully it won’t take another taste of the end of days to bring back the human energy needed to power the clean energy revolution.