Is the US oil industry undergoing a significant shift in its relationship with its government, now accepting levels of influence or direct control that would have been unthinkable only a few months ago? Are the large oil companies, and the supply of energy they oversee, now so important to national security that they must be protected and regulated like the big banks after the last financial crisis? These are questions that will have profound implications for the petroleum industry around the world, and also the price that we will all end up paying for the petrol in our tanks. As we start to flatten the curve of COVID-19 cases, our attention is turning to the widening financial implications of this worldwide pandemic and the lasting effect it will have on our economies and communities.
The COVID-19 Pandemic gives birth to an old Crisis
In recent weeks we have seen ‘once in a lifetime’ events becoming almost commonplace, and no less so in the oil markets. A distinct drop-off in prices began with the arrival of COVID-19 in early January, then accelerated as the world went into lockdown and everyone suddenly realised that we would not be burning so much of the ‘black gold’ for a considerable time. The initial failure of OPEC to agree to production cuts, and the subsequent oil price war between Russia and Saudi Arabia led to all oil prices, including the West Texas Intermediate benchmark (WTI), falling even more dramatically after 8th March. Many in the media soon concluded that this was a direct attack on US shale oil production, an industry which had been growing quickly, supported by President Trump, and which had boosted US output to become the largest oil producing nation in 2018 (See figure 1).
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