The sudden onset of the coronavirus pandemic had a pronounced effect on the energy sector, driving oil prices down to astronomical lows and causing so much of a supply glut that companies were forced to scramble for storage space. It's no surprise, then, that the industry has been forced to make over $100 billion in write-downs this year.
Relief didn't appear to be anywhere in sight for the energy sector this year. Not only did oil producers have to contend with shrinking demand, but they also had to deal with the Organization of the Petroleum Exporting Countries (OPEC) and its struggle to address an oversaturated and unstable market. Even when OPEC was able to strike a deal between members, the industry felt considerable pressure.
Write-downs became an unfortunate fact of life as 2020 wore on, and companies were forced to reassess the value of their growing inventories. Exxon (NYSE: XOM), for example, warned of an impending fourth-quarter write-down that could reach as high as $20 billion. Some companies, such as Chevron (NYSE: CVX), experienced difficulties before the pandemic even began, writing down $11 billion in inventory in December of last year. Royal Dutch Shell (NYSE: RDS.A) and Total SE (NYSE: TOT) leaned heavily on write-downs this year, contributing a third of the entire industry's total write-downs. In total, pre-existing troubles mixing with the coronavirus pandemic caused the industry to shoulder over $145 billion in write-downs throughout the pandemic.
The oil sector, much like the rest of the business world, had been banking on a "V" shaped economic recovery that never materialized. For the oil industry specifically, recovery to pre-pandemic levels may not be entirely guaranteed due to the increasing shift in emphasis towards renewable energy. The future tightening of oil's rivalry with renewable energy and the push most countries are making towards carbon-neutral energy production targets will likely limit any long-term growth as well.