COVID-19

“Suppliers are sexy,” but the real oil collapse story is demand

Scott Tong Apr 3, 2020
HTML EMBED:
COPY
There's a lack of demand for oil as people stay home during the COVID-19 pandemic. Above, a woman wearing gloves gases up her car in Los Angeles on March 18. Chris Delmas/AFP via Getty Images
COVID-19

“Suppliers are sexy,” but the real oil collapse story is demand

Scott Tong Apr 3, 2020
There's a lack of demand for oil as people stay home during the COVID-19 pandemic. Above, a woman wearing gloves gases up her car in Los Angeles on March 18. Chris Delmas/AFP via Getty Images
HTML EMBED:
COPY

Oil prices spiked this week on news that key producers — Saudi Arabia, Russia and perhaps the state of Texas — could arrange a coordinated cut in supply. But the defining story of oil in the age of global coronavirus is not supply, analysts say. It’s a historic plunge in demand that has pushed U.S. average gasoline prices to $1.91 a gallon.

Source: GasBuddy.com

Except in China, where virus-related travel restrictions are being lifted, most people in the world are not moving. Oil, of course, is for moving. Many analysts project that world demand for crude in April could plummet by 30%. That would be the worst dive ever — almost.

“We saw an equivalent drop from 1929 to 1934,” Philip Verleger, longtime energy economist and senior energy adviser in the Carter administration, said. “Crude prices went from $2 a barrel to 25 cents. A 90% drop.”

To avoid a repeat of that, oil producers are trying to respond. American oil and gas executives met at the White House Friday to discuss policy responses. And Monday, representatives of OPEC and Russia are expected to meet by video to consider joint supply cuts. But to many, discussions of oil supply are a sideshow.

“You know, the suppliers are sexy and the demand is boring,” Sarah Ladislaw, energy fellow and vice president at the Center for Strategic and International Studies. “But the reality is that there’s probably not a lot suppliers can do in terms of supply cuts, because the demand destruction is just so large.”

There’s probably not a lot suppliers can do … demand destruction is just so large.

Sarah Ladislaw, Center for Strategic and International Studies

Because demand has plunged spectacularly, the world’s oil is projected to run out of storage space in the next few months. Crude oil would physically have no place to go, forcing producers to stop pumping abruptly. Prices could collapse further. To avoid that scenario, the world’s largest oil suppliers are mulling unheard of supply cuts to match the historic destruction in demand.

“Russia, Saudi Arabia and the U.S. are producing something like 35 million barrels” per day, Per Magnus Nysveen, lead analyst and senior partner of Rystad Energy, said. “If they are cutting up to 15 million barrels [daily], they are cutting up to half their production. Extremely dramatic.”

They are trying to survive until a possible recovery in demand next year. Ladislaw, however, warns that would only happen if the virus is contained and people are and driving and flying again.

COVID-19 Economy FAQs

What’s going on with extra COVID-19 unemployment benefits?

The latest: President Donald Trump signed an executive action directing $400 extra a week in unemployment benefits. But will that aid actually reach people? It’s still unclear. Trump directed federal agencies to send $300 dollars in weekly aid, taken from the federal disaster relief fund, and called on states to provide an additional $100. But states’ budgets are stretched thin as it is.

What’s the latest on evictions?

For millions of Americans, things are looking grim. Unemployment is high, and pandemic eviction moratoriums have expired in states across the country. And as many people already know, eviction is something that can haunt a person’s life for years. For instance, getting evicted can make it hard to rent again. And that can lead to spiraling poverty.

Which retailers are requiring that people wear masks when shopping? And how are they enforcing those rules?

Walmart, Target, Lowe’s, CVS, Home Depot, Costco — they all have policies that say shoppers are required to wear a mask. When an employee confronts a customer who refuses, the interaction can spin out of control, so many of these retailers are telling their workers to not enforce these mandates. But, just having them will actually get more people to wear masks.

You can find answers to more questions on unemployment benefits and COVID-19 here.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.