(gentle music)
- [Narrator] The coronavirus has emptied out cities.
Fewer people are driving cars or boarding planes.
Factories are idled.
As a result, the world is burning less oil.
But many of the world's major oil producers
have been pumping more than ever,
leading to a crash in oil prices.
Low prices normally put cash in the pockets of drivers
and fuel-burning businesses like airlines.
But this is different.
- Consumers like low prices, but in today's environment,
where so many people are quarantined,
the people cannot benefit from low oil prices,
so there's no winner in this current situation.
- [Narrator] Analysts say that the current bust is so bad
it could radically reshape the oil market.
Here's how we got here.
Oil producers' most pressing problem
is that a lot of people don't need its products.
By April, the consumption of petroleum in the U.S.
Had fallen to the lowest levels in at least 30 years.
Demand for gasoline has declines by nearly half
since mid-March.
Jet fuel consumption plunged by more than 70% since then.
The trend is similar around the globe.
It started in China, where the first of billions of people
around the world began to shelter in place
to slow the spread of the deadly virus.
- For 2020, oil demand, oil consumption will decline.
It increased every year, but it decline
because of what's happening in China,
what is happening in the global economy.
This is one reason.
- [Narrator] By late March,
billions of people around the world were staying home.
Analysts estimate that global demand for crude oil
will decline by about a third,
or about 30 million barrels a day, during the pandemic.
Meanwhile, oil is piling up with nowhere to go.
Pipelines are filling.
Refineries and storage tanks, like these, are brimming.
And some oil is being stashed at sea on ships.
That's because the global pandemic arrived
right as production around the world was surging.
In recent years, the Saudi-led
Organization of the Petroleum Exporting Countries
and other nations, like Russia, have coordinated
production cuts, intended to prop up oil prices.
They were working together to buoy prices
as U.S. producers flooded the market.
But the truce was short-lived.
In early March, Russia and Saudi Arabia
couldn't come to terms on a new round of cuts.
Then Saudi Arabia turned on its taps.
- Market turmoil is about more than just the virus;
oil prices suffered historic collapse late Sunday
after Saudi Arabia shocked the market
by launching a price war against one-time ally Russia.
- [Narrator] Meanwhile, U.S. producers continued to pump
even as prices fell.
U.S. production hit a record of 13.1 million barrels a day
in late February and stayed around there through March.
U.S. companies were reluctant to slow down,
having borrowed heavily in recent years
to drill wells, build pipelines,
and maintain fleets of expensive machinery.
With billions of dollars of debt coming due,
they couldn't afford to stop pumping.
But by late March, already low oil prices
had fallen by more than a half.
And the pain became unbearable.
You can see it in this chart,
which shows the number of drilling rigs
in Canada and the United States.
The drilling rig count declined
as companies cut their budgets in mid-March.
By April, U.S. production began declining.
In April, Saudi Arabia and Russia,
where the governments are supported by oil sales,
rekindled their market alliance.
They convened a group of 23 oil producing nations
who agreed to once again restrict output and support prices.
They agreed to reduce their collective output
by about 10 million barrels a day.
So far, the market has not been impressed.
Goldman Sachs analysts called it
a historic yet insufficient cut.
Oil prices fell when trading opened the next day.
- What's a really fascinating question
for the energy industry, for the oil industry,
is will this dialogue between Saudi Arabia,
Russia, The United States and others,
will it endure beyond the immediate crisis?
We could be entering a new era of international dialogue
on the oil market of the like we've never seen before.