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Effects on Oil Price in the US[edit]
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The global coronavirus pandemic has caused oil prices to drop bellow zero at a certain point on April 20th 2020, for the first time in world history.[1] Many people around the world have questioned why that has occurred. It is first important to address why we use Oil?
Reasons Why We Use Oil[edit]
| Ranking for Oil Use | Reason why we use oil | Percentage | Barrels of oil consumed a day (in millions) |
|---|---|---|---|
| 1 | Transportation | 69% | 14 |
| 2 | Industrials | 25% | 5.13 |
| 3 | Residential | 3% | 0.56 |
| 4 | Commercial | 2% | 0.48 |
| 5 | Electric power | 1% | 0.11 |
Such a table above shows that the number one reason why people in the US use oil is for transportation.
World Health Organization Suggestions[edit]
With the current COVID-19 pandemic, the World Health Organization has strongly advised that the best way for you to not get the virus is by staying at home. Statements such as “Maintaining at least 3 feet distance between yourself and others”[1] and “Avoiding contact with others"[1] have strongly urged individuals to stay at home during the pandemic, causing a reduction in oil consumption, mainly because people are moving less often. People who are moving less are using their cars less often, consuming less gas, resulting in a lower demand for oil. Such a lower demand in oil is causing prices to fall.
The basic rule of supply and demand states that as demand falls, price falls. Such a reduction in demand for oil is causing prices to fall. According to a study by Rystad Energy, a leading energy, research, and business intelligence company, The E&P industry made over $2.47 trillion dollars in 2019, and is expected to bring in only $1.47 trillion dollars this year in 2020, predicting a 40% decline in the consumption of oil worldwide[3], mainly due to the reduction of movement that is occurring around the world.
Stay at Home Orders[edit]
Many individuals in over 26 states across the US are under stay at home orders as of May 5th, 2020.[4] Such an order forces many individuals not to go out. To be more exact 65% of Americans are under stay at home orders.[4] This means that less movement is occurring in the nation, also meaning that individuals are using less gas to move across places. This means that the demand for fuel is decreasing across the nation.
Such a lockdown on the majority of people living in America is expected to decrease the level of consumption of oil, by the world's largest consumer. With recent studies in the World Oil Review of 2018, it was noted that US was the top consuming oil country in the world with 20.8 billion barrels of oil per day. Such information makes it clear that stay at home orders will strongly affect the demand and consumption of oil not only in the United States but in the world.[5]
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Jet Fuel Prices[edit]
Jet fuel prices have been strongly affected by the decrease in movement with the pandemic.[6] The demand for jet fuel have decreased as a result of a decrease in flights that are occurring around the world with movement restrictions or individuals being worried about traveling for their own safety.[6] The coronavirus epidemic has lead to thousands of flights being canceled daily, within the US, coming into the US, or leaving the United States.[6] Such restrictions has caused a massive reduction in the demand for jet fuel from ordinary consumption levels before the coronavirus epidemic.[6]
According to facts by the Transportation Security Administration, the amount of travelers who were screened in the United States on the date April 7th, 2020, was a hundred thousand passengers.[6] This number represents a 95% drop if that number is compared to that same day last year. Such evidence shows that the coronavirus is threatening the demand for jet fuel due to the decreased level of flights that are occurring around the world.[6]
Based on Index Mundi, a highly academic jet fuel price platform, the price of jet fuel decreased from $1.03 a gallon to 0.72 cents over the course of the period when Trump declared the coronavirus a national emergency and May 9, 2020.[7] Such evidence clearly shows that the coronavirus epidemic has lead to prices of jet fuel being decreased as a result of a decrease in movement in flights.[6]
Storage Issues[edit]
Recent studies by the Energy Information Administration indicate that storage capacity for oil in the United States currently stands at 653.4 million barrels.[8] Stocks of oil are currently at 323.5 million barrels of oil as of the date April 10th 2020.[8] Such numbers strongly indicate that oil reserves will reach maximum capacity in the following five weeks, according to the director of an oil investment bank called Mizuho Securities.[8] A surplus in the level of oil in storages is expected to drastically decrease the price as the basic rule of supply and demand states that as supply increases the price of the product, in this case the oil decreases.[9] Such information makes it worrying that the price of jet fuel may be strongly be affected by the storage surplus of oil.
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References[edit]
- ^ a b c "Advice for public". www.who.int. Retrieved 2020-05-13.
- ^ "Use of oil - U.S. Energy Information Administration (EIA)". www.eia.gov. Retrieved 2020-06-01.
- ^ Turak, Natasha (2020-04-30). "Oil and gas companies set to lose $1 trillion in revenues this year". CNBC. Retrieved 2020-05-13.
- ^ a b Secon, Holly. "An interactive map of the US cities and states still under lockdown — and those that are reopening". Business Insider. Retrieved 2020-06-01.
- ^ Desclazi, Claudio (2019). World Oil Review. O And Gr. pp. 19–20.
- ^ a b c d e f g Ellwood, Mark. "A Look at How Coronavirus Has Affected Air Travel, By the Numbers". Condé Nast Traveler. Retrieved 2020-05-13.
- ^ "Jet Fuel - Daily Price - Commodity Prices - Price Charts, Data, and News - IndexMundi". www.indexmundi.com. Retrieved 2020-05-13.
- ^ a b c Saefong, Myra P. "The oil market is running out of storage space and production cuts loom". MarketWatch. Retrieved 2020-05-13.
- ^ Chappelow, Jim. "Law of Supply and Demand". Investopedia. Retrieved 2020-06-02.