Wednesday, 15 April 2020

COVID-19 impact on the global oil market - Alex Mould writes

COVID-19: Government needs to Prepare for the inevitable lockdown ...

 


 

Before the intense spread of COVID-19 to the rest of the world, this year had already started as an interesting one for the oil industry. We observed a production war between Russia and Saudi Arabia-really a war between Russia and USA; which led to over-production and consequently, the immediate collapse of the oil price to as low as US$20 per barrel.

 

Now in the heat of its spread, the pandemic has effected a two (2) percent slowdown in development of all economies globally – with of course, some countries being hit harder than others. Global consumption has dropped from a high of about 90 million barrels/day to less than 70 million barrels/day, which is a tremendous impact to the supply and demand curve guiding the oil industry.

 

This drastic slowdown of oil and gas demand, coupled with the impacts of a brutal price war among the powers that be, has the industry struggling to maintain the status quo in comparison to the recent past. There were calls last week for a truce between these producers which needed the Organization of the Petroleum Exporting Companies (OPEC members) to all agree on supply cuts. This seems to have been somewhat successful, as prices have risen to over US$30/bbl, and should remain in this range ($30-40/bbl) for the next 2 months should these producers adhere to the supply-cuts agreement. The rest of the world will have to wait and see if all parties in this cartel comply; something that’s very difficult to do.

 

In addition, the pandemic will lead to a recession of sorts in most countries, with the level of impact varying as a result of government’s ability to manage the economy while their countries lockdown, and stimulate the economy thereafter in the “new normal”.

 

The oil and gas industry like all others will have to patiently wait as demand begins to rise slowly as the world reopens and gains a foothold on managing the virus.

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