Natural GasPetroleum

How do Global Pandemics Impact the Fossil Fuel Industry?

Fossil Fuel Producers Depend on Growth

The fossil fuel industry thrives on global economic growth. Since economic growth is correlated with energy consumption, a growing global economy has historically stimulated an increasing thirst for fossil fuels. Conversely, when economic growth is projected to decline, so does fossil fuel consumption. For years, petroleum and natural gas companies have been suffering from historically low commodity prices. The drop in commodity prices has initiated a sharp drop in global prices for fossil fuels. As a result of declining fossil fuel revenues, big-name oil companies like Chevron, BP, and Royal Dutch Shell have been cutting investments in oil and gas production and exploration for new reserves. Exxon Mobil has been one of the only major oil and gas producers to continue making sizable infrastructure and exploration investments amid declining revenues. During a time when major fossil fuel producers are already feeling the pressure from declining oil and gas prices, anxiety has continued to persist about global pandemic fears.

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Virus Fears

Beginning in late 2019, fears related to the economic effects of the coronavirus outbreak paralyzed global economic markets. Stunted global economic markets have had a tremendously negative impact on the fossil fuel industry. In December 2019, economic reports conveyed that China imported approximately 10.78 million barrels of oil per day, which represents nearly ten percent of the world’s total oil production (Wald, 2020). However, by February of 2020, research conducted by Bloomberg Media revealed that Chinese oil demand had dropped by over three million barrels a day. This drop in oil imports can be largely attributed to China’s fierce measures to quarantine an entire region where the coronavirus outbreak is said to have originated. Shutting down numerous businesses, factories, public transportation, and power plants contributed to declining energy consumption across the region.

Following a significant drop in energy consumption, China halted a whole series of oil imports. Sinopec, which is a major Chinese oil refiner, stopped buying all crude oil shipments from West Africa. Moreover, it had been reported that Sinopec even tried to resell crude from Angola that it had already purchased (Wald, 2020). As these reports were circulated throughout the international community, the price of oil continued to collapse even more dramatically.   

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Chinese Energy Demand

For years, the increasing demand for fossil fuels in China had propelled fossil fuel prices to new heights. Between 2013 and 2019, China’s domestic oil production fell by 15 percent, while the country’s overall demand for oil rose by more than 30 percent to 13.8 million billion barrels per day (Clemente, 2019). As China’s energy demand skyrocketed over the past couple of decades because of population growth and increasing levels of economic development, the country’s total energy consumption reached an astonishing 25 percent of the global demand for energy (Clemente, 2019). Between 2018 and September 2019 alone, China’s oil imports jumped by 10.8 percent, which exceeded many economic projections (Lee, 2019). When China National Petroleum Corporation introduced a major new domestic refinery, raw crude oil imports surged because of the country’s ability to refine more petroleum products within its own borders.

In addition to rising oil imports, China’s demand for natural gas also surged in recent years. A little over a decade ago, China was importing almost no natural gas. However, in 2019, China surpassed Japan as the world’s biggest importer of liquefied natural gas (Clemente, 2019). The surge in gas imports has been a sign of China’s aggressive anti-pollution campaign. This government-initiated campaign has been aimed at switching roughly 4.93 million Chinese households entirely over to natural gas from more carbon-intensive fuels like coal. In a little less than a year between 2017 and 2018, China successfully converted roughly ten million households that were heating with coal-fired equipment to natural gas-powered systems (Lee, 2019).

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Falling Demand

Throughout the past decade, roughly two dozen supertankers filled with crude oil sailed each month from West Africa to China to fulfill the country’s growing need for fossil fuels. Nearly a fifth of all China’s oil imports make the 12,000-mile journey past the horn of Cape Town, South Africa to the Southeast Asian nation (Carpenter, 2020). The anticipation that China would continue to increase its demand for petroleum had helped to fuel economic growth and prosperity in West Africa. In past commodity trade cycles, Chinese petroleum refiners are said to have purchased up to an entire month’s supply of crude oil two months prior to the oil even being pumped out of the ground. However, when the coronavirus first started to have a debilitating impact on Asia’s largest economy, the demand for oil from West Africa cratered.

While China had been the largest driver of Angola’s 1.3 million barrels of oil per day, oil companies in Angola have had to find new consumers to sell their oil. Companies like Exxon Mobil and France’s Total have been forced to sell Angolan crude oil on the cheap to refining companies like Bharat Petroleum, which is an Indian company that leapt in to buy unwanted oil. Moreover, Angola’s state oil company, Sonangol, also started to encounter challenges with selling crude oil as the coronavirus became widespread. In addition to Bharat Petroleum moving in to scoop up cheap oil shipments, the historically low prices also enticed Taiwan’s state-owned oil company to become a new customer for Angola (Carpenter, 2020).

2020 Predictions

Energy analysts originally anticipated that 2020 would be a year that oil prices would recover from the global oil supply glut. However, the fear initiated by the spread of the coronavirus ended up sending oil prices to multi-year lows. Weak global energy demand and uncertainty about future economic growth has kept oil prices from rebounding. In order to determine how certain events will impact oil prices, energy analysts and economists often look to past events. When it comes to global pandemics, there have been numerous events in the recent past that economists have been able to evaluate to predict the impact that future pandemics would have on fossil fuel prices.

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SARS Outbreak

In 2002 through 2003, an outbreak of severe acute respiratory syndrome, more commonly known as SARS, had a modest but short-lived impact on the global economy. The head of the Global Economics Service at Capital Economics, Jennifer McKeown, said, “Even the significant economic disruption related to SARS turned out to be temporary and experts expect this disease to be less deadly and better contained” (Saefong, 2020). The viral SARS outbreak caused a brief period of panic that impacted global commodity prices. As consumer spending took a hit during the short-term outbreak, prices for crude oil were also adversely impacted.

Any incident that initiates a slowdown in air travel, industrial production, and gasoline consumption would lead to less oil demand bumping up against increasing oil supplies. When global oil supplies vastly outweigh global oil demand, prices fall almost universally. During the beginning of the coronavirus outbreak, energy analysts applied a series of economic models developed following the SARS outbreak to forecast how a similar event would impact oil volumes in 2020. When this model was applied by Goldman Sachs analysts, the coronavirus was anticipated to reduce up to 260,000 barrels of oil per day in global demand. Within this reduction in global oil demand, a 170,000 barrel-per-day loss of jet fuel demand was also projected. Overall, Goldman Sachs analysts predicted that the coronavirus would have a modest $2.90 reduction in the price of a barrel of oil (Saefong, 2020).

The uncertainty that was felt during the SARS outbreak was the main factor that led oil prices to fall. While the actual decline in economic activity had a marginal impact, the fear that global economic activity would be halted over an extended period of time was the real impacting factor. The assumption that a much larger economic impact could occur led to an oil price drop of roughly 20 percent during the SARS scare (Saefong, 2020). However, the level of fear dropped as the number of new SARS cases declined. Following this news, oil prices quickly recovered as regional economic activity started to assume normal operations. While the SARS outbreak caused economic activity to decline for nearly five months, the recovery time was swift in comparison.

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Coronavirus Predictions

In early January 2020, the head of the Global Economics Service at Capital Economics said that, “Based on the information we have, we do not expect the coronavirus to have more than a temporary effect on global GDP, which is likely to be made up once the disease is brought under control” (Saefong, 2020). However, from the beginning of January through the end of February, the stock market’s S&P Oil & Gas Index plunged by upwards of 32 percent (Blackmon, 2020). Even with the relatively optimistic outlook from Capital Economics, investors didn’t appear to be convinced that the coronavirus impact would be as short-lived as some economists originally anticipated.

Following an announcement that the spread of the coronavirus in the U.S. was inevitable from Dr. Nancy Messonnier, a top official at the U.S. Centers for Disease Control and Prevention (CDC), oil and gas markets took an additional price hit. These disturbing announcements have had a tremendous impact on heavily leveraged companies like Chesapeake Energy, which has long struggled with rising levels of debt. Energy analysts fear that many smaller fossil fuel companies may be driven out of business by the continued fear of a worldwide pandemic. Even the big-name oil companies like Exxon Mobil, Chevron, and BP who have major diversification of assets across the globe, as well as full integration in their operations, have seen their valuations tumble at an alarming rate.

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Controlling Fear

As the fear of the coronavirus started to heavily impact all aspects of the global economy, Bank of America released a statement that said, “US energy stocks are now underperforming those in the S&P 500 by the biggest margin since the Japanese attack on Pearl Harbor in December 1941” (Blackmon, 2020). Moreover, as geopolitical tensions have continued to ease in the Middle East and with North Korea, the so-called “fear premium” has not been a factor that has helped to uplift oil prices during the initial spread of the coronavirus. On the other hand, if a virus were to start to impact the production of oil and gas, that could conversely cause the fear premium to increase fossil fuel prices.

The one positive impact that global virus scares have had for typical consumers is the price that is paid at the gas pump. When oil prices stay low, that often translates to lows prices for gasoline and diesel fuel. While fuel prices don’t drop immediately following a collapse in oil prices, consumers experienced modest gas and diesel price reductions during the SARS outbreak and during the initial outbreak of the coronavirus.

While some consumers may applaud lower fuel prices, it’s clear that long periods of time with significantly depressed oil prices may actually have a net negative impact on the average consumer. According to Strategic Energy and Economic Research, the overall impacts of the coronavirus could lead to long-term impacts that reduce some oil and gas producer profits by as much as 60 percent (Krauss, 2020). The new glut of gasoline, diesel, and jet fuel within the global marketplace has had an adverse impact on individual fossil fuel producers and even entire countries that depend on fossil fuels for economic growth.


Blackmon, D. (2020). “The Oil And Gas Situation: Time For Alarm Has Arrived.” Forbes.

Carpenter, S. (2020). “To Gauge The Impact Of The Coronavirus On China’s Oil Demand, Look To West Africa.” Forbes.

Clemente, J. (2019). “China Soaring Past Japan In Liquefied Natural Gas Imports.” Forbes.

Krauss, C. (2020). “Coronavirus Adds to Pressure for U.S. Oil Industry.” The New York Times.

Lee, J. (2019). “China September crude oil imports rise on strong seasonal demand.” Reuters.

Saefong, M. (2020). “What the 2003 SARS epidemic tells us about the potential impact of China’s coronavirus on oil and metals.” Market Watch.

Wald, E. (2020). “Coronavirus Sends Oil Prices Plummeting: 5 Key Questions Answered.” Forbes.  

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