This week, Aldo Flores, former deputy secretary of energy for hydrocarbons at Mexico’s ministry of energy, and Marianne Kah, former chief economist for ConocoPhillips, organized an event to discuss the oil markets and the future of energy. Incase you’re unaware of the current oil prices, it has decreased to below $0. Before today I didn’t even know a number like that was possible in the market. This number didn’t appear out of thin air though, this decline started towards the beginning of this year due to the pandemic.
This is no cause for alarm yet; no one needs to stock up on oil like some are with toilet paper. The oil markets have a vast history of “boosts and busts” as Aldo Flores said. He also stated that the market “is well acquainted with versatility of moments in crisis and successes”. As you could probably guess, the price of oil normally increases in times of conflict and decreases in times of peace. In the meeting they discussed how the prices have been difficult to stabilize since 2014 due to a large abundance of oil in Texas. All these factors contribute to the current price we have now, and the pandemic is what tipped it over the edge into the negatives. Aldo Flores illustrated in his PowerPoint his plan to address the situation at hand. For the physical and financial market, he believes we need to bring down the production of oil, and if we have too much, then we should build strategic reserves of it. For demand, he stated that in order to have economic stimulus we must have policy transparency. There must be set clear rules on how to engage in trading and allow investors and liquidity into the market. After Aldo Flores spoke, Marianna Kah took the metaphorical stage and discussed some possible futures with us.
Marianna Kah lead the conversation with her PowerPoint detailing multiple statistics from IEA and OPEC, each with a set of predictions for the future. As of now, most of our energy comes from fossil fuels with a low percentage coming from renewable energy. Most of the possible futures claim that our fossil fuel consumption will mostly stay the same, but renewable energy will increase from 2% to 5-7% by 2040. The only future that is drastically different from these is one where the earth stays below 2 degrees Celsius. In this statistic renewable energy will take up most of our energy while fossil fuels only consume a small portion of it. Furthermore, Marianna Kah went on to discuss what the future may look like for everyday people.
The industries that will take the biggest blows are the transportation companies. Ride sharing apps and airlines are already losing thousands upon thousands of dollars a day and the end is nowhere near. Many people believe that the world we lived in before will never completely come back. Pleasure travel will be greatly reduced, and visas will become harder to attain. The need for oil may never come back because people are learning how to adapt to life in less complex ways. 3D printing will increase and other industries that require less social interaction will boom. Countries will want things produced at home for the very same reason. If this does happen, the U.S. and Canada will bear the brunt of this because they are inland. Unlike European or Asian countries, the U.S. and Canada have a limited number of people to trade with by their boarders.
In contrast, Marianna Kah also stated that the need for oil could easily spike because most people are buying in bulk now which will lead to a greater production of goods. Greater production leads to more transportation which results in more gasoline and jet fuel used. Ultimately, no one can predict the future, and it’s best not to try. All anyone can do now is look out for each other and do our best in the strange, new times we live in. Stay healthy everyone!
This is such an interesting topic. I just read this news a couple days ago. The oil prices drop due to several reasons but the most important reason is the supply and demand. Many countries close their borders due to the CoronaVirus so the production in the world decreases. Also the transportation consumes the most oil is airplanes, which many airlines have to postpone their flights due to the border restrictions. However, the price will bounce back when the cure for the CoronaVirus is completed. Many countries will buy more products from the US to get their economy back on track.
Jacob, I think this is a really interesting topic to be talking about given the current crisis we’re faced with. Gas prices being below zero implies that it costs more to transport and store it so producers can’t give the stuff away fast enough. Effects like this are the ones happening everywhere at every level of society, but we all may not be aware of them. I liked your take at the end on how this crisis could change the way countries approach international trade, and their attitudes towards producing domestically versus abroad. It does pose an interesting question as to whether or not people will bounce back to normalcy after prolonged isolation, or if the fear of infection will keep people wary and cautious in their day to day lives moving forward. I think also that a lot of issues that made waves before this crisis hit will get pushed to the sidelines once again. For example, the climate crisis. One of the biggest hindrances to sustainable and climate friendly development was the deviation to a less than optimal economic system. Are renewable energies more economical than fossil fuels? However close that question may have been to being answered and addressed, it is likely an afterthought now, as the world will be focused on rebuilding economies, not innovating and changing them. However, the silver lining is that maybe this serves as an opportunity to start from the ground up, and maybe sustainable energy and alternative fuels will be implemented along the way. We certainly can rely on oil for cheap and efficient energy, but we are just as certain that it will not last forever.