In the famous Samuel Taylor Coleridge poem, “The Rime of the Ancient Mariner”, a lone sailor is adrift on the ocean, surrounded by water, yet he suffers from dehydration. Unable to drink the salt water from the ocean, he laments, “Water, water everywhere but not a drop to drink”.
Such is the case with the petroleum producing companies as oil prices plunged into negative territory for the first time since recording began in 1983. A combination of a production war between Russia and Saudi Arabia that flooded the market with oil combined with an historic drop in demand due to the Coronavirus pandemic have resulted in the worst oil crisis since the 1973 Arab Oil Embargo.
Some of us are old enough to remember the long gas lines and rationing that the oil embargo caused. The result of Middle East tensions, the oil embargo served as punishment on the United States by the Organization of Petroleum Exporting Countries (OPEC) for America’s support of Israel in the ongoing Middle East conflict. It caused a stock market crash and alerted Americans to their fragile reliance on oil exports.
Basically, they had use over a barrel (pun intended).
Similarly, there was the oil crisis of 2003-2008, when a high demand for oil and gasoline led to a dramatic rise in prices, as high as $4 a gallon in some places.
As a result, oil companies began receiving government subsidies to ramp up production and increase oil exploration. Fracking, the process of releasing trapped oil and natural gas from shale, and offshore drilling have led to America becoming the world’s number one oil producer.
Now we are in a completely opposite situation. Oil reserves, meant to prevent a crisis similar to the 1973 embargo, are at an all time high, yet there is little demand. Countries are left with barrels of oil, but no market for them.
The current situation caused the stock market to plunge yet again as another offshoot of the Coronavirus pandemic threatened another part of the economy. Shale oil companies, who specialize in fracking, as well as offshore drilling facilities, could be shut down due to the tremendous drop in demand.
While this is seen as a negative for the economy, environmentalists are surely cheering. Fracking has caused untold damage to the environment as the water used to release the trapped oil has made its way into nearby wells and drinking water, while the opposition to offshore drilling and its impact on marine life has been well documented.
So, the collapse of the oil industry may not be all bad news. It can result in more environmental protections and spur on the long-delayed process of finding alternative energy sources.