Oil and Gas in the Age of COVID‐19 —Where Do They Go From Here?

Smead, Richard G.

Within the global financial chaos caused by the impacts of COVID‐19, the oil and natural gas production industry has been hit unusually hard. At the onset of the pandemic, oil was already experiencing severe market distress, as global supply exceeded global demand. OPEC had tried to craft a cutback in production, which then turned into a price war between Russia and Saudi Arabia, driving a dramatic decline in global crude oil prices. Then, as the global pandemic emerged and the response of almost all major consuming nations was to bring travel, industry, and workplace commuting to a screeching full stop, the resulting collapse in demand allowed the oil industry to give an object lesson in supply‐demand economics. The bottom fell out of the crude oil price both internationally and domestically for the United States. Figure 1 charts the price of US crude oil at the West Texas Intermediate (WTI) index at Cushing, Oklahoma, from 2007, when the shale era began, to the current situation (the chart presents the data on a rolling‐monthly‐average basis, to smooth out the high level of daily volatility experienced over that entire 13‐year period).