Crazy - A Year Like No Other: Negative Crude Oil Prices, an Anemic Rebound, and a Deep Freeze

Well, it’s been 365 days since the unthinkable happened: the price of WTI at Cushing went negative last April 20, and by a solid $37.63 a barrel at that. The insanity didn’t end there, though. The pandemic that many thought would be behind us in a season or two at most had a second wave, then a third and, some say, a fourth. U.S. refinery demand for crude oil, which plummeted by more than 3 MMb/d last spring, still has only recouped only half that loss. E&Ps, who shut in thousands of wells when oil demand and prices tanked, still are only producing 11 MMb/d — 2 MMb/d less than they were pre-COVID. LNG exports took a big hit too, another victim of demand destruction. As if all that weren’t enough, a couple of months ago, just as new vaccines were providing hope that everything would soon be returning to normal, the Deep Freeze put the Texas economy on ice and slowed production and refining once again. Strange times indeed. But we’re learning from it all, right? Today is the one-year anniversary of oil price Armageddon, so we take a look back at 12 months of market madness that no one could have predicted.

Imagine if, at the start of 2020, someone in our line of work (energy consulting) told its clients to buckle up because the world was about to be turned upside down. “Listen up, folks! Within a few weeks, economies around the globe will be going into lockdown, air travel will be grinding to a halt, oil will be selling at negative prices, hundreds of millions of workers will stop commuting and start working in their pajamas, and toilet paper and Clorox wipes will become hot commodities. Oh, and everyone will be wearing surgical masks, so stock up on those too!”

The prescient consultant would have been called a total wacko or more likely a fearmonger. But of course, there were no such warnings. Because there’s no way that a lot of what’s happened over the past 12 months could have been anticipated. Sure, there was a global pandemic a century ago, and there have been a number of major disruptions in energy markets, but this has been different from the beginning. Within a three-week span from mid-March to early April last year, implied U.S. demand for gasoline dropped by almost half: from 9.7 MMb/d to less than 5.1 MMb/d (left graph in Figure 1), according to EIA, and refinery utilization dropped from near 90% to less than 70% (dashed red circle in right graph). (Refinery utilization also spiked downward in February 2021 during the Deep Freeze.)

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