The time of shifts in the industries has come and many industries including the oil sector are suffering already with the Coronavirus outbreak. The time of impact has left its place for the oil industry. Prior to this pandemic, the oil industry was already on its low phase.
With the industry facing issues of low oil prices, COVID-19 has brought with it the shortage of demand too. This makes the issue more critical and problematic to solve. When situations such as low price have been hit, the demand was never in the long-view, it was always there. But COVID-19 has led people to put themselves behind their doors with zero movements of their cars, bikes, or even the usage of public transport.
Before COVID-19 had befallen on everyone, Barclays projected a global peak in oil demand between 2030 and 2035 followed by a steady demand reduction, while the International Energy Agency CIE (IEA) projections also see oil demand plateau in the 2030s.
The phase of the Oil Industry due to COVID-19
These are not the only factors that are affecting the oil prices and sector, the oil industry assumed the demand to be shifted to the petrochem and plastics industry. But, however, due to the disposable plastic usage and demand, the plastics are to have a negative impact on oil demand growth.
As per the research by Lux Research, it is too early to assess the impact properly, early indications by traders suggest a 20% drop in demand.
It is said that similar time of decrease in oil demand was witnessed in 1980 during the recessions, but that was also said to be just a 5% loss as compared to the current situation.
According to oil and gas industry experts the situation of the oil prices has been suffering even before the Coronavirus(COVID-19) outbreak happened. The price of oil fell by 30% in the first week in March before the Oil Industry is affected by the Coronavirus outbreak started settling in. This, however, was led by Saudi Arabia and Russia with a price war of OPEC. The amount of oil brought had a huge supply in the market but the demand going down made the most negative impact possible. It is a dreading phase in the oil industry where the COVID-19 is threatening the price of oil to go negative if the storage runs out.
Many countries being on lockdown have bought the oil for their reserves if such a situation arises again, for example, the USA.
With China being the largest country and second-largest economy, it is accountable for 9.3% of global GDP. When China’s Oil Industry is affected by the Coronavirus outbreak and shut down its supply and chain, the global GDP effect was large accumulating the total of every country that contributed. With the whole shutdown of travel and tourism, a drop-in jet fuel prices occurred being much more than the price of gasoline. The travel and tour of China is a major contributor to its economy, before COVID-19, China used about a million barrels of jet fuel a day making up to 12% of global jet fuel demand.
The loss that China is facing due to the lockdown and halt of international travel has taken a toll on the oil industry.
The future of the Oil Industry
As per the committee, they are sitting together in conferences to make a plan for the betterment and digitalization in oil and gas industry but it will merely take the oil prices any higher and so the demand.
As per some facts and figures from Trading Economics shows, the price per barrel of oil has gone down steeply in the last four months, from $64.58 on 5 January to $20 on 1 April. This scenario has also been driven forward by two periods of significant declines:
- A fall from $47.80 to $30.16 between 5th and 9th March
- And, fall from $33.33 to $20.23 ranging from 13th to 18 of March.
The two causes and issues, social and economic costs have stripped the oil prices to the lowest leading it to face its hardest time. A lot of work is needed to take help from Saudi Arabis and Russia to help them and let this phase pass. Such challenges might come in the future and what is needed at this time is to work being protected and learn lessons from it to avoid such mishappening in future.
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