Over the barrel: Energy lessons from Covid-19

In the midst of a global pandemic of epic dimensions, one is hesitant to write about the narrow subject of petroleum. It seems so trivial. But then, if there is one certainty, it is that human ingenuity and technology will push us, sooner (hopefully) than later, into a post-Covid world. And at that time, India will, once again, confront the challenge of oil and gas supply security.

We should ask, therefore: What will be the landscape of the petroleum sector, post-Covid? And what should India do now to prepare for an uncertain and contingent energy future?
The Centre has indeed ‘fallen apart’ in the international petroleum market. The concept of MAD (Mutual Assured Destruction) deterred the nuclear powers during the Cold War.

It has had no such effect on the oil powers. For, at a time when Covid had pushed the global economy into recession, the proxies of the Saudi Crown Prince, Mohammed Bin Salman (MBS) and the Russian President, Vladimir Putin, took a set of decisions last month that knocked the economic props from under the oil market. The Saudis decided to flood the market to hold onto market share, and the Russians accepted the consequent decline in prices to push the US Shale industry to the wall.

Both may achieve their objectives, but they have sounded the death knell of the OPEC (Organisation of the Petroleum Exporting Countries), and possibly that of the oil industry, too.

In the late 1990s, the Economist magazine did a story on oil prices. The cover page had a picture of an oil barrel with an arrow painted in red slicing downwards across the barrel with ‘$5?’ written in bold on the side. I am reminded of this article because it is reflective of current conditions. Today, the price of oil, at just above $30/bbl (at the time of writing), is at a decade low and volatile downwards.

The average price in 2019 was $64/bbl. The reason is two-fold. One, the Saudis have ramped up production from 9.8 mbd (pre the March meeting) to in excess of 12 mbd today. And two, there has been an unprecedented Covid-induced crash in demand.

financial express
Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button