The words “pandemic” and “struggling” seem to be tangled with each other recently. The oil business, in general, is yet another casualty in this global crisis. While the effect of the pandemic goes across the board, from small to big oil companies, the big producers have some resources to back them up. The small oil producers will be taking the brunt of the hit. Some will have no choice but to shut their doors and lay employees off.
So, Why Are They Struggling?
Because of the pandemic-driven lockdowns, several businesses had no option but to close. In large cities and small towns alike, much of the electricity use comes from big companies. Yes, there will be more electricity at home, as family members huddle in to avoid health risks, but they do not use as much energy as companies in their big buildings. Travel has also significantly decreased. Big oil users, such as planes, have not been getting a lot of mileage due to the strict lockdown rules of each country. Nobody is interested in going anywhere else, but home. Even those who are not in their own homes cannot leave where they are for fear of getting infected by the coronavirus during travel or being trapped in quarantine centers for weeks.
What Are the Other Competitors?
Some energy users have also begun their transition towards cheaper and sustainable energy. Several households in the world, including a couple of Southern states in the United States, have shifted towards wind and turbine energy. This shift has been brought about by economic struggles. Businesses and households alike seek to save money as much as possible, as they face an uncertain future. The more stores close, the more people lose their jobs. Job losses do not inspire consumption. When consumption cannot be avoided, oil producers are losing to cheaper, renewable resources.
Why Are Oil Prices Dropping?
As oil usage drops, the cost also drops. A staggering crash from $70 a barrel to $20 from January 2020 to April does make the word “drop” an understatement. There is not a lot of demand. This situation may even continue for a few more years after we survive the pandemic. The lack of usage is not due to scarcity, but because several industries have had to halt operations. Imagine if the lockdown continues down this road. Prices may even get lower, and producers may not be interested in selling at those rates. Even though at low prices, people are happy to buy, they can only buy so much. Despite the low prices, demand is down and because demand is down, the price is low. So, small oil producers cannot even get a break from the pricing. The recent pandemic is undoubtedly highlighting the “survival of the fittest” aspect of living. The world may not have been completely stripped to its essentials, but the possibility has been laid bare. For small oil producers, there may be no option but to close. Even big oil companies will struggle, and oil suppliers are slowing down production because of recent events. Soon, some small oil producers may have no choice but to become part of mergers or to become wholly bought by more prominent companies. At the moment, the future still seems so bleak for them.