Coronavirus may be the straw that breaks the back of oil fracking
Consumers have some good news at the service station. Prices at the pump for gasoline and diesel are down about 6% since the beginning of the year. For that they can thank the coronavirus (now called Covid-19) outbreak—although it comes at the heavy cost of almost 47,000 people ill and 1,369 dead so far according to the Feb. 14 statistics from the World Health Organization.
![](https://www.thevaluechainng.com/wp-content/uploads/2020/02/image-2.jpeg)
The continuing drop from the 2010s is owed in large part to expanding oil supplies, largely through the controversial method known as hydraulic fracturing, commonly called fracking, a talking point in the 2020 presidential campaign. High-pressure water and chemicals pumped deep underground crack shale rock open, releasing trapped oil for extraction.”People don’t understand how important the oil shale business has been for the global oil markets,” said Adam Rozencwajg, managing partner of natural resources investment advisor G&R Associates.
“In the last ten years, world oil consumption has gone up by about 13 million barrels a day. Close to 75% of that oil came from U.S. shale.”But the most recent drop in gas prices is a result—at least in big part—of the reduced economic activity in China due to Covid-19. Economic activity and consumption of oil in China are down significantly.
The International Energy Agency has cut its demand outlook by 30% in response. Prices are dropping like a stone and have already reached the point where new fracking is barely profitable, if at all.Environmentalists might applaud, but the cheers could be muted in a few years.
The fracking business has already been on shaky legs, and current conditions remind some of what eventually led to triple-digit barrel prices a decade back.
Oil and gas tumble
There’s been a sharp drop of oil prices since the year’s opening. “Brent crude and other oil indicators are down about 20% in the last 30 days, so it’s significant,” said Max Krangle, director of energy market research firm NRGExpert.
“Unofficial Chinese government sources have said [national] demand is down about 20%, or 3 million barrels a day, which is a significant decline.
“Although getting reliable data out of China can at times be challenging, Krangle said it’s not difficult to substantiate these numbers given the quarantine and the panic we’ve seen.
“The graph below shows how West Texas intermediate (WTI) and Brent per-barrel crude oil prices—the major benchmarks for the commodities—have changed since the beginning of 2010.
SOURCE: fortune.com