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The spread of the COVID-19 pandemic across the states affected several firms across major industries. For instance, when the government enforced several movement restrictions, some companies experienced a productivity decrease as employees were required to work from home. All industries suffered a huge setback, especially during the early months of the pandemic. Despite the government’s efforts to employ fiscal policies to influence the economy, the consequences were evident and severe. Demand for non-essential goods decreased while that of critical products went up. There were other notable economic impacts. For instance, the pandemic caused dramatic swings in household spending and damaged the nation’s industrial production (the output in the manufacturing, mining, and utility factors). Eventually, the country’s industrial production dropped sharply, with only partial rebounds recently
After the COVID-19 outbreak, the worst performing sectors were those related to the oil industry. Thorbecke explains oil industry performance in terms of investment returns in the first months of 2020. He noted, “for crude oil production and oil equipment and services, a one-dollar investment fell to 31 cents, for oil refining and marketing it fell to 36 cents, and for pipelines it fell to 39.8 cents” (p. 26, 2020). On 19th February 2020, one barrel of oil was going at 53 USD. This price fell to barely 23 USD by March, maintaining this record-low until Mid-April. During this period, one dollar invested in oil equipment and services on 19th February of 2020 fell to 42 cents. Subsequently, one dollar invested in crude oil production fell to just 45 cents. These massive trends indicate how investing in oil production at this period had become a disincentive to many companies across the country.
The oil supply chain was affected significantly, causing a shortage of essential products across the nation. The closure of factories resulted in a decrease in supply and demand for some products. For example, manufacturing companies reduced their capacity while shutting down some plants completely (CampKevin, 2020). As a result, oil demand went down in some parts. Subsequently, there was a massive decline in traffic on various roads as fewer people traveled to and from their workplaces. Only a few oil production firms achieved their pre-pandemic levels in supply. International oil producers that provide cheaper oil were unable to keep up with the rising cost of production during the pandemic, causing a massive decline in supply and an increase in oil prices across the country.
The oil and gas industry employed almost half a million Americans across extraction, drilling, and support activities in 2019. These jobs are within regions where industry downturns cause a significant impact. For example, in the early months of the pandemic, Texas oil and gas jobs accounted for a mere 2% of the private sector employment in the state (Saha, 2020). Yet, significant parts of its economy remain connected to oil production, refining, and distribution. COVID-19 pandemic caused record-low prices and worker layoffs. In March 2020, the industry lost over 50,000 jobs in drilling and refining alone. Overall impacts of worker layoffs in the industry differed from one state to another depending on their diversification. After a while, federal and state policies tailored to regions most affected by the pandemic became necessary.
The year 2020 saw critical changes in oil demand and supply in the country. The US Energy Information Administration (EIA) stated that crude oil consumption in the first quarter of 2020 was 94.1 mbl/d, a decline of 5.8 mbl/d compared to the previous year (Norouzi, 2021). The administration believed that oil demand at the end of 2021 would rise significantly. However, this only happened gradually. Crude oil reserves have gone up massively since Russia’s deal with OPEC broke, and oil demand skyrocketed because of the pandemic. The considerable drop in prices and demand for petroleum products has led to most refineries globally reducing the volume of oil imports.
According to the world bank, oil production in the United States dropped by one-fifth in May 2020. Its output has since recovered but remains relatively lower than pre-pandemic. Investment in new oil production is also weak. For instance, the world bank records that the oil rig count (a measure of latest drilling activity) fell by three-quarters, reaching an all-time low by August 2020, though it has since recovered modestly (Nagle, 2020). Two-thirds of oil consumption is in transport, with jet fuel the most impacted in 2020 and 2021 due to a collapse in air travel. Diesel was the least affected because of its increased usage in road transport. This sector experienced a boom because of the rise in e-commerce). Soon, consumption and production may remain well below the pre-pandemic trend, but its effect will be mainly through a shift in people’s behaviors.
Oil production and consumption appear to have recovered substantially in recent times after the US government showed signs of support. Uncertainty about the industry and recovery from the pandemic is still high. This pandemic has caused indirect effects on the production of other goods through the tremendous impact on the oil industry. Many companies located thousands of kilometers from the refineries and processing plants had to wait several days to get adequate oil due to extended traffic clearances and a decrease in the number of service companies at the time. The economy’s production function changed for a while before the government came up with fiscal and monetary policies to stimulate the economy. The current industry’s situation remains unprecedented. This challenge results from the continued financial crisis, vulnerability of commodity markets, and increased political tension.
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CampKevin, M. (2020, October 30). From the barrel to the pump: The impact of the COVID-19 pandemic on prices for petroleum products. U.S. Bureau of Labor Statistics. https://www.bls.gov/opub/mlr/2020/article/from-the-barrel-to-the-pump.htm
Nagle, P. (2020). The oil market outlook: Lasting scars from the pandemic. World Bank Blogs. https://blogs.worldbank.org/opendata/oil-market-outlook-lasting-scars-pandemic
Norouzi, N. (2021). Post‐COVID ‐19 and globalization of oil and natural gas trade: Challenges, opportunities, lessons, regulations, and strategies. International Journal of Energy Research, 45(10), 14338-14356. https://doi.org/10.1002/er.6762
Saha, D. (2020, August 5). COVID-19 bailouts should target oil and gas workers and communities, not companies. World Resources Institute. https://www.wri.org/insights/covid-19-bailouts-should-target-oil-and-gas-workers-and-communities-not-companies
Thorbecke, W. (2020). The impact of the COVID-19 pandemic on the U.S. economy: Evidence from the stock market. Journal of Risk and Financial Management, 13(10), 233. https://doi.org/10.3390/jrfm13100233
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