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Is there evidence of the 'end of oil' or is it just an illusion?

Is there evidence of the 'end of oil' or is it just an illusion?

The oil market hit record lows in April, prompting some to wonder if the industry could make a full recovery. With the cost of a single barrel of oil briefly dipping into negative numbers, it's safe to say that this was the hardest period in the market's modern history.

The current crisis could spell the end of fossil fuels, and while that would create difficulties for many people in the industry, it would also be a positive development from an environmental point of view.

The case is clear. Due to the global pandemic, the demand for oil has largely dried up and, with all production capacity lost, it is likely that demand cannot be met, at least for a time, if it rises again. These conditions create a scenario that raises the specter of a permanently damaged fossil fuel industry.

But is there any real evidence, other than the April numbers, of the end of oil?

Purely from a market perspective, it's hard to tell. At this time, crude oil is still the most traded product in the world. And while investors were negatively affected by the April slide, they still don't seem to be leaving the market.

Recent charts indicate that around 79% of people with relevant business interests seek to buy oil, rather than offload it. This may mean that investors want to capitalize on low prices in hopes of a recovery, but one way or another shows a degree of confidence in the market. It is impossible to say whether or not that trust is well founded at this point. But traders remain bullish on oil.

However, when we consider real-world demand, there are some more interesting tests to consider. Most significant is the state of the transportation required, which ultimately accounts for much of the world's oil consumption. From commuting to international flights, business and leisure travel have evaporated around the world in recent months.

When it will return to its pre-pandemic levels, no one knows. Recently, Goldman Sachs representatives predicted that demand for oil will rebound, but could be affected by a lack of business travel. The focus of those comments was primarily on air travel, but commercial transportation of all kinds may be permanently shifting.

Many companies are already discussing the potential to stick with work-from-home options even after the pandemic. Twitter CEO Jack Dorsey has announced that the company's employees can work from home permanently if they prefer. That kind of initiative at numerous companies around the world, employing millions, could minimize business travel in ways that could affect the oil industry.

The fact that some of the world's largest cities are already working to offer alternative options compounds the potential migration away from the day-to-day business travel. Specifically, cities are currently adding bike lanes as a way to provide citizens with places to go while maintaining a healthy social distance, but ultimately as alternative transportation options.

In particular, officials in cities like Milan and Paris have already made clear that their new cycling and pedestrian routes are meant to be permanent. They were conceived in part to keep air pollution levels low, given the revealing data that has shown a decrease in pollution during blockades. What this means is that in some of the world's busiest business centers, even those who continue to commute to work can do so with little need for fuel.

Meanwhile, progress is being made towards alternative fuels and a more widespread use of electric vehicles. Estimates vary widely as to when most cars will be electric or when certain alternative transportation methods will be fully viable. However, the general direction of progress is undeniable. It is conceivable that a true boom in eco-perspiration would emerge at the worst possible time for the oil industry.

In all likelihood, none of these factors will actually spell the "end" of oil anytime soon. However, it is also foolish to consider the current industry struggle to be entirely temporary. It could be that a combination of changing social behavior, new urban planning, and emerging technologies will prevent the oil industry from fully recovering.

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