how covid-19 will infect energy independence…

how covid-19 will infect energy independence…

I remember the big drop in oil prices in the early 1980s that caused oil producing states to go into a severe recession. I lived in Oklahoma at the time and many lost their jobs…wells were capped…and it was a rough period of time for the economies of states that relied on oil. It took a long time to recover.

The lowest crude prices since 2002

The recent glut in oil supply has depressed crude prices to levels we have not seen in almost 20 years. There is too much oil flooding the markets for a variety of political reasons, at a time when demand for oil is dropping due to the Covid-19 outbreak., and prices are in the tank. Many shale producers may not survive these low prices and will likely be forced to shut down, and they were the producers that helped us achieve energy independence. I spoke with one gas station owner yesterday who told me his sales of gasoline are off 80% due to the low demand…people are working from home…and right now the need for oil is low.

What happens in these situations is that the little oil producers are driven out of business. The big oil producers that remain in business have to cut back…so gradually the oil surplus is drawn down over time…and then the pendulum swings the other way and the prices eventually skyrocket. Of course there is an international component to it as well. Global oil prices are set by the supply and demand for crude oil. Right now, the U.S. gets most of it’s oil here at home. We also get some oil from Mexico and Canada…but very little, if any, comes from the Middle East. Nevertheless, there is a global surplus of oil and it will take a while for the situation to balance out. In fact, right now there is a shortage of storage space for the excess oil and prices for storing the oil are climbing…creating a double whammy for oil producers.

Of course, cheaper gas is appealing to us all. But the longer the Covid-19 shut down continues, the longer the demand stays low…going into a time of year when people normally would be planning and starting to take trips. The airline industry is a good parallel example…some carriers may not come back from this economic nightmare…and those lost jobs will not return. The same is happening in the oil industry now.

The commensurate shutdown of the shale oil and smaller oil producers will eventually threaten our energy independence…and once again we will be forced to rely on foreign oil until prices rise enough for the smaller producers to get back into the market. It is a vicious cycle that takes years to play out. .

or those who dislike fossil fuels…or even delight in the demise of the oil industry for ideological or ecological reasons…take stock of what you use in your daily life. Oil is used in, and needed for the production, transportation, and marketing of everything in your life. It;s not just the gas you put into your car. Oil is needed to produce virtually every item in your home, all the clothing you wear, your phones, infrastructure…everything. Plus,there are many retirees who rely on the oil industry for dividend payments from these oil companies to keep their retirement accounts afloat during these tough time.

Keep a close eye on this situation, it could get a lot more dicey.