Dubai PR Network, Online Press Release from Dubai and Middle East
 
Oil & Gas(Energy and Industry)
Filter PR by
  
Reduced Demand for Global Oil Supply May Be Permanent
 

Dubai, United Arab Emirates, May 13, 2020:   Robert Minter, Investment Strategist at Aberdeen Standard Investments, explains the impact of the pandemic on the O&G sector worldwide and offers some predictions for the next 12 months.
 
Some stress had already begun to appear in the global oil markets at the turn of the year. The US and Europe were in the middle  of an unusually warm  winter, which reduced  energy demand. In the US, investors were prioritising capital discipline over production increases and had started raising interest rates for lower credit quality oil producers. But little evidence existed for the impending shock to demand that would dwarf all others.
 
The first cases of coronavirus occurred in early December but were not in sufficient scale to be noticed until six weeks later in mid-January. By early March, it was clear this was a global pandemic with social isolation a primary mitigating strategy. There are now 118 countries, representing 92% of global GDP, with some form of social isolation in place.
 
During the global financial crisis, oil demand dropped from 88 million barrels per day to 83 million barrels per day (bpd), a fall of  5 million or 5.6%. It was the worst economic downturn since the Great Depression.
 
In the second quarter of 2020, oil demand could drop by 16 million bpd or 16%. That would be roughly three times as severe a drop as the 2008 Global Financial Crisis – and those qualify as optimistic estimates. Airplane traffic in the US is down 90%, and auto traffic is down well over 60%, with Europe showing similar declines.
 
At the micro-level, as people stop driving to work, school and other activities, they do not need to buy gasoline for their autos. The petrol station cannot sell its inventory and stops purchasing gasoline from the refinery. The refinery then stops buying crude from producers, regardless of the price. The crude producers then cut plans for future developments, as they fill storage tanks with excess production and eventually shut existing production.
 
The velocity of the lockdowns means not enough inventory has moved in the petrol stations to allow gasoline prices to fall as fast as crude. Refinery margins have dropped from $17 per barrel to zero over the last few weeks. Some grades of crude have seen single-digit pricing, and even negative pricing, due to high storage and transportation costs.
 
Who will cut production to balance this shock? 
Assuming any coordinated cut is too small to offset the demand drop, the producers with the highest cash costs to produce would be the first to cut. A global supply decline of 10 million bpd is reasonable to expect, with prices near $20. These cuts would fall hardest on Canadian producers followed by South American producers, then US producers, Asian producers, and then specific producers in OPEC, Venezuela and Nigeria.
 
What path does the oil price take for the next 12 months? 
The price will be determined by the rate of demand decline and the duration of the shutdown.
The rate is relatively uncontroversial: a 30% drop in demand for the first month of a country’s virus lockdown, followed by an easing to only 15% drop in demand the second month and a 5% drop for
the third month. The duration is less straightforward and could easily extend, particularly as some industries’ energy use in China is still 15% below pre-virus levels into April.
 
During the second quarter of 2020, storage could increase by 1 billion barrels, which would keep the oil price at $30 for the remainder of the year. A rapid snap back to previous demand levels in the third and fourth quarters would still leave half of the excess inventory weighing on the market into 2021. It is reasonably easy to extend the duration of the shutdown slightly and have an inventory problem for longer.
 
What will be the effect on oil companies? 
Oil companies will get to know their investors very well as the relationships develop into partnerships. Major oil companies will purchase smaller, more leveraged company’s oilfields out of bankruptcy but will produce more judiciously than in the past.
 
Will low oil prices stress geopolitical relationships? 
Yes. In September 2018, Iran had $160 million per day in oil revenue, today as a result of sanctions and the oil price decline, they take in $10 million per day, a drop of 94%. The revenue drop is creating extreme stress domestically amid a raging coronavirus outbreak.
 
Libyan oil production has fallen from 1.1 million bpd to 100,000 barrels bpd as General Haftar negotiates a peace agreement while shutting down oil exports. A return of that 1 million bpd of supply would certainly not help the oversupply situation.
 
What are we missing? 
Almost certainly quite a lot. No one has ever attempted stopping the global economy and restarting it. We shouldn’t expect oil demand to return to previous levels.  Much of the world has now tasted the benefits of working from home, removing commuting time, expense, an increase in family time and better quality of life.
 
Similarly, employers have learned to manage remote employees and become more comfortable with the concept. On the supply side, energy companies with higher leverage, lower margins and  too much overhead, will cease to exist. 
 
On the regulation side, energy security is at the top of most major nation’s priorities. It therefore wouldn’t surprise us to see new regulations in the US that provide protection for domestic energy companies, effectively a move towards the de-globalisation of energy markets.

 


Posted by : Dubai PR Network Editorial Team
Viewed 6234 times
PR Category : Energy and Industry
Posted on : Wednesday, May 13, 2020  3:59:00 PM UAE local time (GMT+4)
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of DubaiPRNetwork.com.
Previous Story : MHPS Captures Global Gas Turbine Market Share Leadership Aga...
Next Story : Commodity Weekly: Oil Bounces but Risk of Tank Tops Still We...
Email this article Print this article

Share this article with your friends and followers
NewsVine
Back to Section Home

Related Stories



 
 
Most Viewed Press Release posted in the last 7 days
Parmigiani Fleurier Launches New Tonda Reine De Mai [5260-Views]
Make Up for Ever is Breaking Through With a Lipstick Revolution With Rouge Artist [4530-Views]
World Gold Council and its Members Highlight Commitment to Sustainable Development Goals ... [3186-Views]
Kantar to Launch the First BrandZ Top 30 Most Valuable Emirati and Saudi Brands [3018-Views]
WCU: Saudis Talk Up Oil; Strong Grain Momentum Continues [2931-Views]
Iba Cosmetics Launches in the Middle East [2927-Views]
Danube Home Launches Its All New “My Garden 2021” E-Catalogue! [2915-Views]
Pasha de Cartier - ITW w/Ambassadors [2800-Views]
Dubai Health Authority and Dubai Healthcare City Authority Sign MoU to Strengthen Partners... [2567-Views]
Be Flawless Trend Edition by essence #MinaXessence [2419-Views]
WTTC Launches New Report on the Future of Travel & Tourism in a Post-COVID World [2374-Views]
Back With a Bang: IMAGINE Returns to Dubai Festival City Mall's Festival Bay [2165-Views]
Aspiring Novelists Take Note: The Emirates Litfest Writing Prize is Now Open for 2021 [2132-Views]
5 Simple Ways to Amp Up Your Denim Game for Under AED 100 [2107-Views]
Emirates SkyCargo Signs Humanitarian Logistics MoU with International Humanitarian City [2062-Views]
Ras Al Khaimah International Airport Has Secured the Repatriation of 53,000 Indian Citizen... [2050-Views]
Dubai Festival City Mall Launches 2nd Edition of Dubai Home Festival [2034-Views]
Etihad Airways Celebrates Its Pledge To the Kingdom of Saudi Arabia on Their 90th National... [2029-Views]
New-in Comfy and Trendy Maternity Pieces from Mummyista [1915-Views]
Dubai Culture Reveals Children's Wishes in ‘My Library & Expo' Time Capsule [1906-Views]
Parmigiani Fleurier's New Tonda GT Line' [1890-Views]
Homegrown Concept NÜWATER – The UAE's First Alternative to Plastic Bottled Water [1886-Views]
Sony World Photography Awards 2021 Judges and New Competition Categories Announced [1800-Views]
Marhaba! Abu Dhabi Offers a Welcome Return to UFC Fight Island for Global Stars [1742-Views]
Lipton and Peace One Day Join Forces in Global Partnership for International Day of Peace ... [1722-Views]
 
RSS Facebook Twitter LinkedDin
 
Top Sections
 
Top Stories