Corona Impact on Oil Industry
The Covid-19 pandemic has highlighted the fragile state of the world’s energy markets. The consequences of the pandemic and subsequent market turmoil have slowed down the entire oil industry.
It is expected that oil demand across the globe may shrink by 15-20 million barrels per day (mbpd) from a high of 100 mbpd due to Corona effect including extensive lockdown in oil consuming economies.
The pandemic has already impacted the price and trade of crude oil. The collapse of global oil demand and effect of price-war resulted in Brent crude price reaching 17 years low.
This downfall has already distressed investors in upstream sector. Companies across the oil and gas value chain are re-evaluating their Capex to offset the demand slowdown. Regular activities of producers, equipment and service providers, EPC contractors, storage and transportation companies, fleet operators, traders, and marketers are getting delayed or cancelled.
The pandemic has significantly hit oil exporters in Middle East countries. It has caused turbulence in heavily reliant oil-based economies. Due to the unprecedented demand destruction suffered by oil markets and to meet output cuts imposed by the latest OPEC+ deal, various production and manufacturing operations have been disrupted and investment plans are put on hold; multiple project contracts have been delayed or cancelled. Even major operation, turnaround maintenance projects have been pushed back by the oil and gas operators in the region.
Globally, the pandemic has caused oil spending to be decreased by $35.4bn from the last quarter of 2019 to the first quarter of 2020. There are projections of contraction of nearly 20%, or $1.5 trillion, in energy investments as a result of the volatility and uncertainty around markets.
However, more stability would return to oil markets in the second half of the year, says Opec Secretary General Mohammad Sanusi Barkindo, expressing cautious optimism that the worst is over. As countries begin to open up, demand will start to come back, says Barkindo.
“A lack of investment in energy today will sow the seeds of another energy crisis in the medium to long term. That would not be in the interests of the global economy." explains Opec chief.
The Covid-19 outbreak has severely affected economic growth, but the road to recovery looks more promising in 2021 and beyond. In the long-run, oil industry would need adequate support from respective governments for survival and to regain investor confidence in the sector.