When oil markets go viral: Covid-19 and the oil industry (part 1)

Exxon gas petrol station

The ecological dimensions of COVID-19 have become increasingly prominent in recent discussion, with several important contributions exploring the pandemic in relation to capitalist agribusiness, widespread loss of biodiversity, and the destruction of natural ecosystems. There is, however, a further element to COVID-19’s ‘ecology’: the ways the escalating pandemic intersects with the fossil fuel industry. Global oil markets are undergoing an unprecedented transformation as a result of Covid-19, and while longer-term trajectories remain open, this moment will undoubtedly shape the politics of oil – and the prospects of mitigating climate change – for decades to come.

With continuing lockdown, and the simultaneous shuttering of large swathes of global manufacturing, transport, industry, and retail, the demand for oil has dropped to historic lows. It has been estimated that the reduction in US automobile use alone has led to an astonishing five percent fall in global oil demand – about the same as if the whole of Europe, Africa and the Middle East had simultaneously stopped driving.

Oil rigs

The International Energy Association’s Executive Director, Fatih Birol, estimated on 25 March that global oil demand could fall by about 20 million barrels per day, a prediction that has now been revised up to 30 million barrels per day.

And just as energy demand is in free-fall, world oil supplies look set to significantly increase following an announcement in early March that Russia and Saudi Arabia would remove limits on production levels. Combined with the effects of the pandemic, this ‘Oil War’ has pushed global oil prices to multi-decade lows, and left producers rushing to find storage space on land and sea for their oil, rather than sell it at a loss.

With global storage fast approaching full capacity, some oil traders are actually now expecting producers to pay them for taking oil off their hands. All of these factors have led analysts to forecast a record number of bankruptcies among oil companies for 2020, an eventuality that could imperil a range of important banks and financial institutions in a manner redolent of 2008.

Petrol station

But what might this extreme shock to energy markets mean for the future of the fossil fuel industry and the possibilities of ending oil-dependency? Some commentators have speculated that this might all be a little bit of good news in the context of the COVID-19 calamity – the pandemic could “kill the oil industry and help save the climate” as a headline in the Guardian newspaper exclaimed on 1 April, with the demise of many smaller oil producers and the weakening of oil majors such as Exxon Mobil, Royal Dutch Shell, and BP bringing us closer to a transition away from fossil fuel use.

Such rosy scenarios, however, tend to abstract from the realities of a catastrophe capitalism that is inexorably tied to the extraction and exploitation of fossil fuels, and which has deeply embedded ‘Big Oil’ in all facets of our lives. Like all moments of sharp change, the eventual path we take out of these multiple, intersecting crises – an oil price crash, severe economic downturn, and virus pandemic – will depend on our capacities to build effective political alternatives to Fossil Capital. We need to pay close attention to the possible winners and losers that might emerge from this current moment and be wary of equating the temporary (albeit severe) collapse of an oil-based economy with the demise of the system itself.

Part 1 of 2: Check out Part 2 for more on the oil industry, Covid-19 and climate change.

Adam Hanieh is a lecturer at SOAS’s Department of Development Studies. Many thanks to Jeffrey R. Webber for helpful suggestions on this piece.

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