Month: March 2020

As Covid-19 continues to spread through the world (there have been over 552,000 confirmed global cases as of right now), it has caused economies to worsen, fall, and downright crash. Although China is expected to start ramping up its production to normal pre-coronavirus levels (China has seen a significant decrease in new cases over the last week), the country’s manufacturing and service sectors fell to record lows in February. A widespread economic slowdown has engulfed the country, and it may serve as foreshadowing of what is to happen in the United States and the rest of the world during the upcoming months. Not surprisingly, even United States big oil could not escape the seemingly inescapable virus. So how has the industry been affected, and what does the future look like for these companies?

On January 1st, a barrel of crude oil sold for $67.05 on the NASDAQ exchange. Today, one barrel is selling for $21.32. Companies’ oil reserves are worth less than half of what they were worth at the start of the year. When China began to suffer from the pandemic, there was a sharp decline in oil demand. Now as the virus has become a global infection, demand has plummeted. Traveling by way of cars, ships, planes, and other modes of transportation is very low due to the implementation of self-quarantining and the scare of venturing outside the home. I have not driven in over 2 weeks, a combination of a lack of desire to go out in public and the minimal amount of stores and shops that are permitted to stay open. With this low demand for gasoline, prices have dropped immensely. Not only does ExxonMobil need barrel prices to remain in the mid-to-high $20’s to remain profitable, but the oil giant would also need barrel prices to exceed $100 to cover all its expenses and shareholder payouts right now. ExxonMobil is not the only company suffering, but just an example of how hard the pandemic is for these big oil companies.

To add fuel (no pun intended) to the fire, the Covid-19 outbreak has been indirectly affecting big oil companies another way: the price war between Russia and Saudi Arabia. Since the demand for oil in China fell early in January, the Organization of the Petroleum Exporting Countries (OPEC) met to discuss decreasing oil production to combat this fall in demand. However, Russia did not agree to cut production, so OPEC threatened to flood the market with oil and undermine all other producers. This sudden increase in expected supply, combined with the already falling prices, has made all U.S. shale drilling essentially uneconomic for the time being.

The rapid decrease in demand for oil, along with the rising tensions on the other side of the world, have stemmed from the Covid-19 outbreak that began in China in December. However, big oil companies in the United States are feeling the effects today. All future projections for these companies were based on a set expected barrel price (for example, ExxonMobil expected that prices would remain at around $60 per barrel for the next five years), and thus the future is truly uncertain after prices per barrel have fallen. The uncertainty has investors on edge while big oil struggles to keep their prices competitive and still make a profit. Overall, it will be an interesting few months to see how these massive companies handle the unexpected situation.

Since being elected in late 2016, Donald Trump has taken on many of the oil questions and uncertainties that had lasted from Obama’s time in office and before. Upon his election, Big Oil companies felt that they had scored a victory. Trump made it clear that he would appoint former ExxonMobil CEO Rex Tillerson as the Secretary of State, former Texas governor Rick Perry to run the Energy Department, and Oklahoma’s Scott Pruitt to take over the EPA. Although changes have taken place within the administration since 2016, the overall mindset has remained obvious and clear since the election. Rick Perry summed up the administration’s perspective on climate change and energy in 2017 when, in order to counter a protestor about rising sea levels, said “You want to talk about something that saves lives? It’s the access to energy around the globe”.

Trump has backed it up. In 2017, he signed his first big piece of legislation to repeal an Obama-era rule. That rule had required energy and mining companies to disclose any payments they made abroad. Although not a major signing compared to other promises from the administration, it showed that Trump would work to reduce the government’s involvement in the oil industry. It marked a real sign that the administration would be looking to roll back federal regulations.

In 2019, President Trump announced the rollback of an environmental regulation on methane emissions. Some of the country’s biggest oil and natural gas companies even supported the removal of the regulation, and it was interesting to see that many of Trump’s critics supported his idea. Opponents to Trump’s announcement cited the fact that, if Big Oil companies supported his decision, it may be at least somewhat of a backward move. Although the EPA rollback was supposed to help small companies that were drowning in debt, the benefits for Big Oil would prove to be much more prevalent. Companies were able to keep more gas in their pipes and equipment, which would allow more products to be produced and enter the market. However, it would also increase the risk of harmful gas emissions in the air. The administration believed that the availability of energy for the country outweighed any cons, and thus the legislation was rolled back.

However, Trump’s presidency has not seen only victories for Big Oil. In 2019, the House of Representatives passed two bills that banned offshore oil and gas drilling off the Atlantic and Pacific coasts, as well as off the Gulf Coast of Florida. A hamper to Trump’s vision to expand offshore drilling, the new regulations were seen by supporters as a “critical step forward in fighting climate change and preserving our environment” (CNBC). Although this passed without the President’s support, it showed that Big Oil is not completely in the government’s pocket. As the times continue to change and environmental preservation becomes more and more of a pressing issue, it will be interesting to see how President Trump responds during his final months in office. It will also prove to be a major factor in the 2020 election, which will be taking place later this year.

As the oil industry has grown in wealth and power, the various companies have begun to have a larger share in American politics as well. Like it or not, these big companies are able to carry out a variety of different strategies that allow them to influence American regulations and laws in their favor. However, these proposed laws may lack the support of the American people and may face a backlash among citizens. So, how have the previous two administrations handled the U.S.’s Big Oil, and how have the people felt about it?

Just a short 2 years into his presidency, Barak Obama was faced with arguably the “worst devastating assault on American soil since 9/11” with the BP oil spill in the Gulf of Mexico. It is widely believed that the Obama Administration had warnings leading up to the spill, yet the president did nothing to act. He overlooked the company’s corruption and lack of environmental safeguards in the simple pursuit of producing oil. Faced with growing concern all across the country, how did Obama’s administration handle this crisis?

It took five years of research and studies, but the Obama Administration did respond, and in a big way. After years of criticism for not acting and playing favors to the oil industry, the President announced new legislation that would help to protect the environment and prevent any sort of similar disaster like the BP oil spill from ever happening again. Five years after the catastrophe that killed 11 people and killed vast areas of wildlife, Big Oil would face harsher regulations. Although this was the third drilling-equipment regulation that the administration had passed (one in 2010 about well casings and another in 2012 about the cementing of walls), this was the largest to date. The rule tightened safety requirements on blowout preventers and other back-up equipment on rigs, some of which had, despite being called “fail-safe”, failed in the 2010 disaster.

The new legislation was popular among environmental groups and others who felt that the oil companies needed to be increasingly regulated after seeing the spill either first-hand or in nightmarish pictures. It was a step in the right direction towards ensuring safe and clean energy for the American people. Accidents and injuries on oil rigs continued to rise after the BP spill, although they were overshadowed by the much larger, more pressing event. Congress was quick to address this issue, nearly doubling the number of safety inspectors in the Gulf of Mexico alone. However, the regulations faced severe backlash from the oil industry. Although companies talked about their goal of achieving “zero spills“, the Obama administration continued to find that “A culture of minimal regulatory compliance continues to exist in the Gulf of Mexico and risk reduction continues to prove elusive”. Led by oil giant ExxonMobil, many companies opposed the legislation and failed to comply.

The Obama Administration was stuck in a tough place. The oil industry, which had increased production under Obama’s watch and, as he claimed, had risen to become the world’s number one producer of oil due to his time in office, held immense power within the country and its economy. Although legislation was passed the horrors of the oil spill had died down, the incoming Trump administration would be left with many questions still to answer.