- Daily Zen
The COVID-19 pandemic is a health calamity that may well end up changing the way the world operates in the post-pandemic world. The world economic order may have to realign and one of the deciding factors of this new normal will be the oil industry, which has seen the prices of a barrel of oil crash to around $30.
This was a result of a failed attempt by Russia and Saudi Arabia to come to an agreement at an OPEC + meeting in early March in Vienna to cut production to one million barrels as the world demand had come to a standstill. But Vladimir Putin and Saudi Arabia’s Prince Mohammed bin Salman did not find any common ground.
A price war ensued, and the WTI crude is trading between $30 to $25. A sort of end game for oil has begun with the two countries fighting to keep the US shale oil production down.
Both Russia and Saudi Arabia are not ready to give an inch as they want the shale and sand oil industries of the United States and Canada priced out of the game. These prices will lead to many independent shale oil companies going out of business.
There is a demand from the oil industry for a bailout from the US government. A Wall Street Journal story says that producers could default on $32-billion in high-yield debt. Another oped in Forbes says, “We will be facing challenging days in the months ahead.”.
America cannot afford to lose its energy jobs or the security and independence that is the result of its vibrant domestic energy industry. No country should be allowed to hold our energy security hostage. We are asking President Trump to do what’s best for our country: Save our energy production …”
The Canadian oil, gas and coal sectors employ 269,000 people directly and 550,000 indirectly, according to 2018 official figures. Similarly, the US supports 1.6 million people in the energy sector.
But free-market thinkers want the industry to find its level without any interference. They believe that oil companies, need to diversify and invest in renewable energy.
The current trouble in the market will move the industry to greener tech and renewable sources. The transition has been predicted to be on the cards by 2030.
The present problem is that the shift cannot happen overnight. Green-tech and energy may produce many jobs, but the transition has not happened at the moment to compensate for the job losses in the industry.
Saudi Arabia and Russia cannot sustain $25 oil for long without consequences either. The Kingdom requires about$83 to balance its budget, while Russia’s breakeven price is around $42.
Saudi Arabia is looking to diversify its economy away from oil. It cannot continue to subsidize its population and maintain these prices. Russia too needs to invest heavily in the economy to bring about better living standards for the citizenry.
President Trump recently tweeted that he had brought about an agreement between the two price warring countries. The prices many stabilize, not because of any political shenanigans, but because demand has petered off, and both countries are at full capacity with nowhere to sell their drums.
Some feel that a stimulus package from the government for the beleaguered shale oil industry is just pushing the inevitable further. The highly leveraged and subsidized industry is gasping its last breath.
Another thinking is that with the fuel prices so low, people will veer away from the green renewable energy sources. Why invest in green tech and renewable fuel energy that is expensive when cheaper and abundant fuel is available?
But this kind of economy is sustainable short-term. In the longterm, the money needs to be invested in clean and sustainable fuels like nuclear energy, solar and wind power, hydrogen fuel, and more.
COVID-19 may be overcome, but if the transition is not made to clean fuel in time, we may soon be facing a climate crisis too.