The Oil Market: Burning Holes in Our Pocket

By Scott Roberts

America loves oil. In fact, we use oil in so many industries that it’s practically inescapable. Whether it’s the gas in your car, your plastic phone case, your water-resistant sweatshirt, your deodorant, or even your favorite chewing gum; you are using an oil product.[1] Making up over one fifth of the world’s total petroleum consumption,[2] we are undeniably dependent on oil, and consequently one of the oil market’s biggest players.

Expectedly, during the Covid-19 pandemic, our demand for such products plummeted as Covid-19 cases spiked, and the price of oil dropped from $65 to $20 a barrel.[3] However, since then, the price has crept closer and closer back to pre-pandemic levels. As vaccination rates rise and consumers resume pre-pandemic economic activities, the demand for oil is increasing rapidly. However, the optimistic efforts to resume pre-pandemic life are not the only factor driving up the price.

Hurricane Ida severely disrupted oil production in the U.S. this August. Production was shut down for 96% of U.S. oil rigs,[4] creating a significant drop in U.S. oil supply. This drop in supply, along with the rising demand, could catalyze a continued rise in prices. This potential for price increase is significant, as consumers are already absorbing part of the rising oil costs. Gas prices in California are over $5 in some regions, and show no signs of lowering any time soon.

Despite government efforts, the push for net zero emissions seems to still be a distant effort for the oil industry. Price increases all over the world indicate “even the wealthiest countries are still dependent on fossil fuels.”[5] However, some companies are making an effort to transition to a more environmentally responsible position. For instance, Shell recently confirmed they are considering the sale of their holdings in the largest U.S. oil field, in an effort to refocus the company on growing its low-carbon investments.[6] This is a monumental move, as it marks the beginning of the oil industries transformation to future.

While oil isn’t going anywhere anytime soon, it shows steps are already being taken by industry giants to pursue fossil fuel alternatives. It will be interesting to see if these industry giants can continue to perform as government regulation becomes more intense, and as the public pushes harder for the net zero movement. Will oil companies become obsolete in the coming decades? Or will they continue to dominate the industry with environmentally responsible alternatives? Only time will tell, but it is much too early for any doubts.

[1] “5 Common Uses of Oil,” Biltmore Oil Blog, June 25, 2020, https://www.biltmoreoil.com/5-common-uses-of-oil [2] “Use of Oil,” U.S. Energy Information Administration, May 10, 2021, https://www.eia.gov/energyexplained/oil-and-petroleum-products/use-of-oil.php [3] “Crude Oil Prices,” Macrotrends Charles Schwab, 2021, https://www.macrotrends.net/1369/crude-oil-price-history-chart [4] “Hurricane Ida disrupted crude oil production and refining activity,” U.S. Energy Information Administration, September 16, 2021, https://www.eia.gov/todayinenergy/detail.php?id=49576. [5] David Hodari, “Global Oil Demand to Exceed Pre-Pandemic Levels,” Wall Street Journal, September 14, 2021, https://www.wsj.com/articles/global-oil-demand-to-exceed-pre-pandemic-levels-next-year-opec-says-11631535663?mod=markets_lead_pos5 [6] Brian Sullivan, “Shell considering sale of holdings,” CNBC, June 13, 2021, https://www.cnbc.com/2021/06/13/shell-considering-sale-of-holdings-in-largest-us-oil-field.html