Climate change will not be high in the consciousness of people struggling to survive.įigure 3 is another thought experiment in which I use tight oil rig count and output to estimate forward levels of U.S. There will be little money or appetite for the massive equipment changes that renewable sources require. Oil will be cheap and abundant for a long time. A world in economic depression will default to the cheapest and most productive fuels. The manufacture of solar panels, wind turbines and electric cars depend on diesel all along the supply chain from extraction to distribution of finished products. Those who see an opportunity for renewable energy in the demise of oil need to think again. What will happen to the excess produced gasoline if storage is full? Will it be burned? Source: EIA and Labyrinth Consulting Services, Inc.ĭiesel demand is less elastic than gasoline demand because of its critical role in heavy transport. gasoline comparative inventory has increased 30 million barrels since March 20 to a record level of 28.4 million barrels more than the five-year average. has had a gasoline surplus since late 2014 and the current surplus is the highest in 5 years (Figure 2).įigure 2. As refineries close and less diesel is produced, there will be lower levels of natural resource extraction, less manufacturing and less buying of goods.ĭiesel cannot be produced without first producing gasoline. The world’s natural resource extraction, shipping and distribution system relies on diesel. Premium: The Oil Sector That Will Suffer The Most Redesigning refineries will not change this. That is because they are too light to contain the organic compounds need to make diesel. grades of oil can be used to produce diesel without blending them with imported oil. refineries require intermediate and heavy crude oil that must be imported. Refinery intakes are already 25% lower than in the first quarter of the year and will fall further as consumption decreases. consumption has fallen about 30% from 20 mmb/d in January to 14 mmb/d in April. It may take several light changes before you get to the other side of the intersection. The light will change from green to red before your car begins to move. A useful analogy is being at a traffic light behind 25 stopped cars. The truth is that I doubt that demand will ever recover.Įconomies will re-start slowly. Unemployment will remain high and consumers will be damaged from lack of income over the months of quarantine. That is because we are in a global depression. Second, I doubt that there will be a demand recovery in the third quarter despite the re-opening of businesses in the second. Source: OPEC, IEA, Vitol, Trafigura, Goldman Sachs and Labyrinth Consulting Services, Inc. 2020 global oil demand may average 20 million barrels per day lower than in 2019. That is because storage will soon be full and shutting in production will be the only option for many producers.įigure 1. First, I believe that supply will fall much faster than most other sources. The estimate in Figure 1 differs from most forecasts in two important ways. This is a time of unimaginable flux and uncertainty because no one knows how long economic activity will be depressed, how long it will take to recover or if it will recover. This estimate is really a thought experiment because it is impossible to know what supply and demand are in the present much less in the next quarter or beyond. Renewable sources will fall behind along with efforts to mitigate climate change.Ģ020 global liquids demand may average 20 mmb/d less than in 2019 (Figure 1). Oil production and prices are unlikely to regain late 2018 levels. The energy mix that underlies the economy will be different now. The old oil industry and the old economy are gone. oil consumption is at its lowest level since 1971 when production was only about 78% of what it was in 2019. Most people, policy makers and economists are energy blind and cannot, therefore, fully grasp the gravity or the consequences of what is happening.Įnergy is the economy and oil is the most important and productive portion of energy. The longer it lasts, the less the future will look anything like the past. Peggy Noonan wrote in her column recently that “this is a never-before-seen level of national economic calamity history doesn’t get bigger than this.” That is the superficial view.Ĭoronavirus has changed everything. Most have considerable debt so bankruptcy is next. The only option for many producers is to shut in their wells. Prices have collapsed and storage is nearly full.
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