Should we stop oil production entirely?

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With oil prices at record lows due to a plunge in demand and record supply levels, many wonder if we should stop oil production entirely. Naval oil tankers are being used as storage facilities rather than a method of transportation of oil. With oil companies willing to pay a lot of money to companies that are willing to store oil, the rush to store oil has never been higher.

All of this makes people wonder why we can't just stop producing oil for a period of time. While many companies have committed to production cuts, cutting production isn't easy from a financial, economic, and from an engineering perspective. I

In this blog post, I'm going to talk about it from an economic perspective.

Why we can't cut oil production entirely

The energy sector comprises of refiners, oil services, drillers, tankers, storage facilities, pipelines, and the explorers. All of them depend on each other in order to make the energy ecosystem alive. 

The drillers rely on the oil services companies to handle their drilling operations. The explorers are needed to find new sources of oil. The storage facilities are needed to store oil. The tankers and the pipelines are needed to transport oil (not until tankers were being used store oil), and the refiners are needed to buy the oil and refine it into many products. 

If one of them goes out, then there will be chaos in the energy sector. If drilling stops, the rest of the players won't have any oil to handle. If the pipelines go away, then transporting oil became a lot harder. If the refiners went away, then who else will take the oil and turn it into something more useful for society? If the storage players went bust, then there will be a lot fewer places to store oil. 

Overall

I believe that we shouldn't stop oil production despite the huge oversupply happening. If we stop oil production, the whole energy sector will receive a huge shock. While it might be felt during the coronavirus lockdown, it will be once the economy reopens and business activity intensifies. I do wonder how the drillers will be treated if oil production does stop drastically. Will any of them have to file for unemployment or will they be furloughed until oil prices move back up? 

While I might not be an expert in the energy sector, this is what I see happening if a drastic end to oil production would happen. Let's hope that everyone working in the energy sector will come out of this oil bloodbath unscathed.