Drilling down

The World Oil Market Post-Pandemic

When the world shut down during the COVID-19 pandemic in March 2020, oil demand dropped drastically. People weren’t commuting because offices were shut down and stores and restaurants were closed. With people hunkered at home rather than on the road, gas, ethanol, and oil all experienced a massive slump in demand.

Troy Schmitz, director and professor at the Morrison School of Agribusiness, and his collaborators, Andrew Schmitz and Charles B. Moss, professors in the Food and Resource Economics Department at the University of Florida, decided to look at the effects. The result was “The Economic Effects of COVID-19 on the Producers of Ethanol, Corn, Gasoline, and Oil,” published in late 2020 in the Journal of Agricultural & Food Industrial Organization.

That paper used data from January to May 2020, and then the researchers projected how 2020 would compare to 2019 if oil prices had stayed roughly the same as the average of those first five months.

Once real-time data was available, they decided to go back and see how close their projections were for 2020 and how the market rebounded in 2021. It turned out that their estimations were almost dead accurate, Schmitz says.

Their follow-up findings appeared in “The Impact of COVID-19 on World Oil Producers: Time Is Important” in the same journal in May 2023.

The second study used real numbers from the second half of 2020 through the end of 2021.

They found that although the global and U.S. oil markets saw a significant decrease—even a dip into the negative—in 2020, oil producers came out ahead.

In 2020, oil producers saw a loss of $1.08 trillion compared to 2019. That included a particularly dark day on April 20, 2020. “On that day, U.S. crude futures were negative,” Schmitz says. “People didn’t have anywhere to store the oil, so they were turning it away, and they had to pay to get rid of it.”

Although the worldwide effects of COVID-19 lingered through 2021 and 2022, Schmitz and his co-authors found that the oil market didn’t take as long to bounce back.

Pent-up demand and the increased reliance on gas, ethanol, and oil when the world returned to working in offices and stores, and restaurants reopened meant more people were back on the road. That resulted in a surge in oil prices.

Specifically, world oil producers saw a gain of $1.92 trillion in 2021 compared to 2019, for a net profit over those two years of $829 billion.

Oil might seem an odd area of study for an agribusiness expert. But as Schmitz points out, oil, gasoline, ethanol, and corn are all connected. “The demand for corn is affected by the demand for ethanol, which is affected by the demand for gasoline, which is affected by the demand for oil,” he explains. Other related food markets—including soybeans, which are used to produce biodiesel, and sugarcane, which is used for ethanol production in some parts of the world—also play a role in that web.

“Energy markets are highly linked with food markets and the whole food supply chain,” Schmitz says. “You can’t just study ethanol without taking into effect the oil and corn markets. It also affects the fertilizer price, affecting farmers’ input price. For example, when corn prices got high, natural gas prices quadrupled. They’re all intertwined, so you have to look at it together instead of as separate pieces.”

Schmitz adds that in looking at 2022 and 2023 oil prices, the effects of COVID-19 are mostly gone. Recent fluctuations, he says, are more likely the result of the Russian invasion of Ukraine.

— Jennifer Daack Woolson