Wednesday, October 28, 2020

The Impact of the Pandemic on Oil and Gas

This summer I was talking with a friend from Texas about the situation there with regard to oil and gas. When the market price of oil goes below a certain point, he said, they just shut everything down and leave it in the ground. That's because it costs more to bring it to market than they will get when they sell it. The oil rigs are thus left idle.

It's been a tough year for the oil industry. The Covid pandemic has dealt a lot of people a bad hand, but we have to play the cards we're dealt. 

I remember a number of years back when the six top companies in the Fortune 50 were automakers and energy companies. Mobil and Shell were slugging it out for the top slot for a while back then. Remarkable as it seems, Mobil was dropped from the Dow Jones Industrial Average this summer. Today the five biggest companies are technology giants. According to the Washington Post, any one of the top five--Alphabet, Amazon, Apple, Facebook and Microsoft--is larger than all 76 companies in the energy sector combined.

Yes, you read that right. 

Part of this is due the long term trend toward renewable energy. Nevertheless, the pandemic has done more than make a dent. When people stop flying, and people stop driving to work every day--in other words, when people stay home they consume less fuel. Combine this with an oil glut due to other factors and you have additional hurdles for the energy companies.  

It's not all bleak news for oil companies. With people in larger cities avoiding public transportation, many are buying cars again. In addition, large numbers of city dwellers are considering leaving city life altogether. Moving to the burbs means more driving as well.

The author also points out that with people shopping less, there are more deliveries being made by Fedex, UPS and other providers. Those engines need to be taken care of as well.

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I began by mentioning that conversation with my friend in Texas. I'd been thinking a lot about the relationship between prices of crude and prices at the pump for diesel owners. As it turns out, there happens to be a Technical Bulletin at the Champion tech bulletins page titled Why Lubricant Prices Don't Mirror Crude Prices. In this case it's information from the Independent Lubricant Manufacturers Association (ILMA). 

The article begins, "Changes in the prices of lubricants, and the base oils that are their foundation, do not mirror either those of crude oil or gasoline. Supply and demand over time is the fundamental price-setting mechanism for lubricants and base oils." You can read the full story here.

You can find that and other useful information by clicking on the Diesel Technical Bulletins button in the right hand column above. And if you can't find what you're looking for you can always Ask Jake.

The rest of the information here is from an article titled How the pandemic is harming the oil and gas industry

Navajo Refinery photo by Robin Sommer on Unsplash

1 comment:

  1. As the economy begins to return to “normal,” many oil and aftermarket companies are taking lessons learned from these COVID-19-induced changes and incorporating them into their day-to-day operations.

    Find balance: Figure out the right balance for the customer and for the company in terms of electronic vs. face-to-face communication.

    Embrace technology: One of the lessons learned is where those areas of opportunity exist to use the technology to not only help the aftermarket self-diagnose but to deliver training, information and knowledge.

    Be flexible: We have had to be very fluid, because we had to move labor from one part of the operation to the other in a much more dynamic way.

    Don’t go backward: Everything we are now doing is 100% here to stay.

    Always be prepared: You can’t take things for granted. Always be prepared for what could be. Make sure that your suppliers are strong and that they are financially healthy.

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