Photo: Internet

In 2020, the global outbreak of the COVID-19 epidemic dragged the global economy into a deep recession, and the crude oil prices suffered a severe setback this year. The COVID-19 wiped out nearly one-third of the world's oil demand, and both Brent crude oil and West Texas Intermediate (WTI) prices have seen a "cliff" decline.

Oil was mainly used as kerosene fuel until the 19th century.By the 20th century, the electric power and chemical industries' progress made oil an important strategic material for many countries to compete.

Oil prices rose as the sharp rise in oil demand, and some worried that the resource would be exhausted.

The "oil crisis" in history

In 1973, when the Fourth Middle East War broke out, the Organization of the Petroleum Exporting Countries (OPEC) declared an oil embargo. It suspended exports to combat Israel and its supporters. At that time, the price of crude oil went from less than US$3 per barrel in 1973 to a sudden increase of four times to US$12.

The second oil crisis was caused by the revolution in Iran, followed by the Iran-Iraq war between Iran and Iraq, which once again increased the price of crude oil from US$14 to US$35 per barrel. The third oil crisis was caused by the outbreak of the Persian Gulf War in 1990. The price of oil rose from US$14 to US$40 per barrel within three months. However, this crisis's impact on the world economy is smaller than the previous two oil crises.

However, the outbreak of the COVID-19 epidemic has caused oil to experience a historical plunge. In 2020, the settlement price on April 20 was minus $37.63 per barrel, which was about 305%. It means that oil producers have to pay buyers a fee, and the latter will need the oil in their hands.

Photo: Refinitiv

OPEC+ reaches deal to cut oil production 

Due to attempting to stabilize a market that has been upended by the coronavirus, the members of OPEC and their allies, including Russia and Mexico had agreed to cut production by 9.7 million barrels a day in May and June, the deepest cut ever agreed to by the world's oil producers. After that, the group will steadily ramp up production until the agreement expires in April 2022.

However, the actual output reduction effect may be far less than the planned scale of the agreed production reduction, and far less than the shrinking global energy demand caused by the COVID-19.

Photo: S&P Global Platts Survey

Oil giant layoffs, SMEs close down

Many oil giants, including ExxonMobil, Royal Dutch Shell, British Petroleum (BP), have seen revenue decline and profits in 2020. The oil giants have reduced costs by reducing exploration and development, layoffs, and other measures.

Chevron Corp cut 10% to 15% of its worldwide workforce as part of an ongoing restructuring at the second-largest U.S. oil producer. Ten thousand will be laid off in BP by the end of the year. Schlumberger is cutting more than 21,000 jobs as the global coronavirus pandemic quashes energy demand, and oil prices are routed.

The overall number of global coronavirus cases has topped 23.8 million, while the deaths have increased to over 818,000 according to the Johns Hopkins University.

The giant oil companies still in a tough time before the COVID-19 is completely controlled.

Could renewable energy completely replace crude oil?

The International Energy Agency (IEA) previously predicted that global oil demand would slow down from 2025. Most oil companies believe that the widespread use of electric vehicles or stricter emission regulations may usher in a peak in oil demand between 2030 and 2035.

Photo: BP

As shown in the figure above, it is undeniable that clean energy's rapid development has partially replaced oil. Since 1990, the share of oil in primary energy consumption has dropped from 50% to 34%; simultaneously, the percentage of natural gas has increased from 17% to 24%, and nuclear and renewable energy has increased from 1% to 8%. The proportion of natural gas, nuclear energy, and renewable energy has increased by 14%.

It is foreseeable that new energy will continue to develop further and become an important energy component. With the advancement of new energy technology, renewable energy is no longer expensive and relies heavily on subsidies. According to Bloomberg, the global photovoltaic cost is now lower than the cost of coal power, and it is technically economical for large-scale utilization. Moreover, to eliminate energy dependence on oil-producing countries, governments of various countries have introduced different policies and measures to promote the use of new energy.

Although the development of new energy vehicles and autonomous driving technologies will lead to a substantial drop in the amount of fuel used in vehicles, aviation, and maritime transport have not yet seen electrification. Aviation and maritime transport will become the main growth points for petroleum energy demand.

The demand for aviation and shipping transportation services is growing rapidly, and its energy consumption growth will be mainly met by oil. In the future, the leading energy source for the transportation industry will still be oil. BP believes that oil will account for approximately 85% of transportation energy demand by 2040.

And so far, renewable energy is hard to replace crude oil completely, and the status of oil as the primary source of global energy supply is still difficult to shake.