Shedding Some Sunlight on Renewable Energy Amidst Plummeting Oil Prices
Article written by Hannah Jacobs
The COVID-19 outbreak has undoubtedly disrupted the fine balance between global oil supply and demand - planes aren’t flying, cars aren’t driving, thus the need for oil products like fuel and gasoline has diminished. Recent pandemic related government restrictions have severely altered the way that oil prices have been determined since the beginning of the modern oil industry, shifting away from oil suppliers as the influencers of oil prices. Instead, the low levels of demand have tipped the equation, making control over demand the most influential determinant of oil prices.
What does a low demand and high supply mean for the price of oil? Well, the price of crude oil fell to almost negative $40 per barrel, but this does not mean that you could be paid $40,000 to take 1,000 barrels off of the producers’ hands. Instead, the benchmark price per barrel represents prices in a “futures” contract for the upcoming month. Typically, with demand relatively reliable, major oil trading entities need not consider storing capacity or physical demand. Under normal circumstances, at the outset of the contract settlement dates, financial speculators sell their contracts to actual oil buyers, such as refineries. On April 21st, the settlement day for the May crude oil contract, the price of oil fell well into the negative numbers before rising again to $9.06.
Why can’t they just stop producing oil until the demand is higher again? All of the available storage facilities for oil are full, thus the reduced oil prices were necessary in order to clear the existing stored oil. Moreover, oil producers are reluctant to halt production due to the physical risk of damaging wells and the financial risk of being the first to yield market shares. Inadequate storage space paired with greatly reduced demand for oil has backed oil producers into a corner.
Restoring the balance between supply and demand is more complicated than coming up with new storage spaces for oil, though. Given the uncertainty of the situation at hand, it is unknown how long America’s energy production will outpace our energy needs.
What can we draw from this novel energy crisis?
For starters, maybe this pause on energy consumption is the perfect time for us to revisit discussions of giving greener energy a proper place in the free market. Consumers have the right to choose among options in a free market, and it seems to follow the conservative ideal that more choices are preferred to fewer ones.
Oil and gas companies were already under criticism for “systemic weaknesses” prior to the Coronavirus outbreak. The Center for International Environment Law reported over 200 bankruptcies in the last five years in the U.S. fracking industry. Meanwhile, wind and solar energy capacities have grown substantially over the last decade. Thanks largely to the Obama-era Recovery Act, costs have dropped dramatically, making wind and solar power the cheapest sources of electricity generation. Despite some minor setbacks, such as the bankruptcy of Solyndra, a California solar panel manufacturer, the loan default rate is surprisingly low at 2%.
Forget the concerns for human health, environmental justice, and planetary wellbeing - a transition to green energy could produce long-lasting economic benefits for the United States, and now might be the perfect time to make the investment in clean energy.
An energy research company projected a reduction in the sales of electric vehicles by 43% in 2020 amid the pandemic. As automakers have largely staked their futures on electric vehicle sales and developments, a federal stimulus bill could provide the support necessary for manufacturing these cars and training workers to build them. Not to mention, the lithium and cobalt used in electric vehicle batteries are mostly imported, and it would certainly follow conservative thinking to fund the domestic production of these minerals.
President Trump’s existing stimulus bill features efforts to save various industries, but the clean energy industry, which he ignored in this bill, might be worth his particular focus if he aims to see improvement in his job approval rating. In March alone, more than 100,000 clean energy workers lost their jobs, and solar and wind companies are predicted to lose thousands more. If we get the ball rolling on a clean energy plan now, we could provide job creation and long-term growth. Clean energy tax credits and investment in transmission lines, which carry solar and wind power to cities in need of energy, could be the first step.