The COVID-19 Pandemic, which began in the early months of 2020, resulting in a near world-wide shutdown in March of 2020, caused a precipitous drop in oil demand as – almost overnight – everyone stayed home.
With a sudden glut of oil on the market and production capacity built out to sustain an ever-moving economy, oil prices collapsed – even going negative for a brief moment in April 2020.
In response to drastic decline in sales and demand, oil companies curbed exploration and shuttered future production projects. In this time, oil companies took on a lot of debt as well.
Uncertainty around how long the shutdown would last created supply problems later on. In spring of 2022, with the economy roaring back, the demand for oil returned. As demand increased, prices rose with it, because the projects that would have met that demand had been stalled.
Part of the theory of Rapid Substitution played out: a drop in demand caused oil prices to crash. As demand increased oil prices soared for the same reason. It’s really hard to stop and then restart oil production.
In 1978, the implementation of the Federal CAFE standards contributed to a sharp decline in oil demand that resulted in much lower oil prices for almost a decade.
In 2008, when wallets got tight, people stayed home, causing the demand for oil to crash – and with it the price.
The Rapid Substitution team has created an extensive analysis and outline of the Rapid Substitution strategy.