COVID-19

Global rebound drives crude oil higher

Mitchell Hartman Mar 8, 2021
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In the fall, the global economy came out of COVID-19 hibernation, and demand for oil and gas began to outstrip supply. Christopher Furlong/Getty Images
COVID-19

Global rebound drives crude oil higher

Mitchell Hartman Mar 8, 2021
Heard on:
In the fall, the global economy came out of COVID-19 hibernation, and demand for oil and gas began to outstrip supply. Christopher Furlong/Getty Images
HTML EMBED:
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It was a bit of a roller coaster for oil prices Monday.

Let’s start by stipulating that a drone and missile attack on Saudi oil and military sites was the proximate cause of oil prices jumping higher Monday morning to above $70 a barrel for Brent crude and just a tad under $68 for West Texas Intermediate. Houthi rebels claimed responsibility. Later reports said there was no significant damage to Saudi facilities, and oil prices ended up falling back down.

But crude oil prices are still up significantly over the past several months. After crashing to negative dollars a barrel on the spot market in mid-April after the pandemic hit, WTI recovered, anemically, to hover around $35 until late fall. Then it started edging steadily higher and is now sitting around $65 a barrel. 

Which is a pretty nice price if you’re a U.S. producer in someplace like the Bakken Formation or Permian Basin.

Here’s what’s happened to the global oil market in the last 12months — in trader jargon:

“We moved from what is called ‘contango’ to ‘backwardation’—a backwar-dated market,” said energy consultant Stephen Schork. To explain in regular-people terms, the “contango” market happened when crude oil demand and prices plummeted after the pandemic hit.

Then, in the fall, the global economy came out of COVID-19 hibernation and needed more oil and gas.

“Demand now is beginning to outstrip supply. There’s a lot of optimism about a vaccine, the economies around the globe opening up,” Schork said.

And that has driven prices up.

Alex Ramos-Peon at Rystad Energy said that’s good news for shale oil producers in the Permian Basin of Texas and New Mexico, “one of the most prolific and one of the most affordable sources of oil nowadays, globally,” he said. “So with all the efficiencies that we’ve seen in drilling, in fracking, essentially all areas of the Permian are commercial and very profitable at $60.”

But more oil-pumping profitably out of the ground doesn’t necessarily mean another boom time in rig workers’ jobs and pay. 

That’s because there’s been massive consolidation accelerated by the pandemic, said analyst Michael Orlando at Econ One Research.  

 “We saw a record number of bankruptcies in the oil and gas sector in 2020, and we were going to see a contraction in employment in the industry, cost reduction in the industry,” he said.

Employment in oil and gas drilling is down about 5,000 since before the pandemic and down about 70,000 since the peak in 2014, according to Bureau of Labor Statistics data.

COVID-19 Economy FAQs

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

Give me a snapshot of the labor market in the U.S.

U.S. job openings in February increased more than expected, according to the Labor Department. Also, the economy added over 900,000 jobs in March. For all of the good jobs news recently, there are still nearly 10 million people who are out of work, and more than 4 million of them have been unemployed for six months or longer. “So we still have a very long way to go until we get a full recovery,” said Elise Gould with the Economic Policy Institute. She said the industries that have the furthest to go are the ones you’d expect: “leisure and hospitality, accommodations, food services, restaurants” and the public sector, especially in education.

What do I need to know about tax season this year?

Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.

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