The Covid-19 crisis has been shaking the world and the Oil & Gas industry for the past few weeks, putting all businesses into uncertainty.
While some countries are emerging from quarantine situation, companies are having hard time evaluating the impacts to their environment, wondering what should we do next?
Short Term : The Overdose
Since the barrel price war initiated by Russia and Saudi Arabia entered a new phase, the major problematic hitting the Oil and Gas market right now is the unbalance between Demand and Supply.
First effect is the noose dive of the barrel price. Gone negatives in April, due partly to the fear of lack of storage and speculation strategy from opportunists, we are not protected to experience again drops of the barrel price in our close future.
The second effect has been the massive storage of Oil all around the world.
At the end of April, around 3 millions barrel are still estimated overstocked everyday.
Onshore storage capacities being already almost full, the storage of Oil is now taking place directly on tankers.
Around 120 millions barrels are currently stored in vessels anchored close to their unloading docks. For example, the map of tankers anchored around Singapore, available on Marine Traffic (1 red dot being a tanker) :Anyway, these 120 million barrels represent only 1.5 day of consumption.
Therefore, the short term vision is not that dark, as at this date most of the industrial countries are getting out of their confinement and experience a return in Oil demand. If we are looking at the percentage of Oil demand in 2020 compared with 2019 on two references dates, April 15th and May 6th, on both years, we can see on the blue table how much the level of demand in four key countries is still low but have increased significantly in the period of only 3 weeks.
This recovery reflects how these economies are opening-up again, giving positive prospects for future.
Mid Term : The Rehab
The main problematic of the industry being the mismatch between demand and supply, the oil exporters started discussions in favor of production cuts.
Here below the blue table, compares the production cuts announced by countries with the forecast of Oil demand estimated by the International Energy Agency (IEA):
On the left, the table indicates the decisions made to cut production on May 1st 2020 by nearly 12 million barrels per day (b/d) from a reference level of 100 million (b/d).
On the right, the demand decrease is given from the same reference of 100 million b/d, showing a significant recovery month per month.
The comparison of both columns, indicates how the increasing demand and decreasing supply curves should cross again on summer. Meaning the Oil & Gas market should retrieve its demand/supply balance.
For sure the industry has been under a lot of pressure on the first part of 2020, yet the market is adapting and progressing on the path to a recovery.
Do not miss the second part of this article exposing the impacts on operators and the long term view, coming at the end of the week.
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