BLACK GOLD FACES BLEAK FUTURE
Compounding the normal springtime ebb in demand for oil, coronavirus-related shutdowns have contribut-ed to the recent drop in the price of crude in the for-ward curves. Unsurprisingly, the fall in price has caused a dramatic drop in supply as producers have started limiting production and, in some cases, per-manently shut down drilling wells in response. How-ever, more significant could be the long-term effects of the price dive on the oil and, in turn, natural gas industries.
The upheaval in the oil market has become a cause for concern among bankers. Loans to oil drillers are expected to drop by tens of billions of dollars. In-deed, the battering taken by the oil market lately makes a renewed commitment to achieving old in-vestment highs unlikely, even if prices roar back. Moreover, whether or not investment in oil resumes, the general political hostility toward shale drillers may continue to suppress oil production, and, because a significant amount of natural gas output is linked to oil production, the viability of that energy commodity is jeopardized as well.
Ironically, such dynamics may create an opening for coal, of all things, to make somewhat of a comeback. As the cleaner-burning fossil fuel, natural gas had steadily displaced coal as the preferred balancing re-source to renewables (whose growth is expected to continue), but a potential drop in supplies of natural gas could raise its prices—especially in peak-load conditions—and make coal more attractive again. As this possibility illustrates, the recent turmoil for oil could unleash a series of disruptions to the entire energy sector.