Oil industry includes operations, such as exploration, production, refining, and transportation, and marketing of petroleum and crude products. There is a considerable dependency on the oil production globally coupled with the growth in the transportation sector and increasing global energy demand. As a result, global economies continuously invest in petroleum-based products. In 2018, the aviation sector has witnessed potential growth coupled with the increasing demand for air transportation since 2000. Both passenger and freight aviation has reported enormous potential in 2018.

As per the International Energy Agency (IEA), in 2018, the total number of air passengers reached a record of 4.3 billion, increased from 4 billion in 2017. The availability of low-cost airlines and growth in the tourism sector were some crucial factors attributed to the growth of the aviation industry, which in turn, has led the demand for oil in the aviation sector. However, in 2020, the global demand for oil has declined sharply owing to the epidemic of coronavirus. Due to the COVID-19 outbreak, the government across the globe has stopped or reduced international travelling, which results in less consumption of kerosene oil.

The aviation sector is the second major consumer of oil with nearly 11.0% share in total oil demand in the transportation sector. As per the Organization of the Petroleum Exporting Countries (OPEC), in 2016, the aviation sector consumed 6 million barrels per day. Therefore, the ban on international travelling is affecting the demand for oil and thereby demand and supply side of oil has been significantly affected by this government ban. As per the IEA, in 2020, the global demand for oil stands at 99.9 million barrels per day, which is declined nearly 90,000 barrels per day from 2019. This is a major decline from the estimation by IEA in February, where it has anticipated that the global demand for oil would grow by 825,000 barrels per day in 2020.

Based on production, the report is segmented based on online and offshore oil production. Offshore oil production is being significantly affected due to the coronavirus outbreak. The energy produced offshore is a key component for the supply of oil and natural gas globally, which is increasingly a crucial source of renewable electricity. Several oil companies are reducing offshore workers to prevent the spread of COVID-19. Equinor, Repsol Sinopec Resources UK (RSRUK), Taqa, and China National Offshore Oil Corp. (CNOOC), have declared plans to reduce the number of workers to help prevent coronavirus reaching its offshore operations. Equinor declared that an offshore worker had contracted coronavirus. The government across the various countries are also supporting the plan to reduce offshore workers, which in turn, will negatively affect oil production capacity.

Based on geography, the global oil industry is classified based on four key regions, including North America, Europe, Asia-Pacific, and Rest of the World. In Asia-Pacific, a significant decline in oil demand has reported due to factory shutdown and travel restrictions. The congestion on traffic is below normal levels, which results in low levels of oil consumption in the road transportation sector in the country. China is the largest consumer of energy across the globe. The country accounted for over 80% of the global rise in demand for oil in 2019. As a result, the decline in oil demand in the country has negatively affected the global oil industry.

Questions:

1.What is the potential opportunity cost of continuingly using crude oil as the main source of fuel or energy in the world?

2.How has COVID-1 affected crude oil demand according to this article?

3.In your opinion, is the change in crude oil demand the change in quantities demanded or a shift of demand curve? Why?

4.In your opinion, has government involvement played a positive role in controlling COVID-19 pandemic? Provide reasoning.

5.How has COVID-19 affected the supply side of global crude oil production?

6.In your opinion, is the change in crude oil supply the change of quantities supplied or a shift of supply curve? Why?

7.What are the factors that affect crude oil demand change?

8.What are the factors that affect crude oil supply change?

9.Do you think any government involvement in setting crude oil price would help crude oil industry to balance the change of crude oil supply and demand? Why?

10.What are the key factors that influence the changes in crude oil price? Explain.