What is happening with the oil industry today?

What is happening with the oil industry today?

The Covid-19 pandemic has hit every industry of the world in the worst possible manner. With more than a million people affected by this deadly virus, the world has come to a standstill. Just as any other industry is showing signs of recession, the oil industry is no exception. Over the last few years, there have been many incidents which have shocked the industry. But, none of them has hit it with this level of ferocity.

The entire market has seen a massive downtrend that has led to huge problems for many companies and related businesses. Oil prices have crumbled and experts believe that this will be the scenario for the rest of the year.

The impact on the oil industry has already been felt all over the world and the global supply chain. Other energy sectors are also showing same signs of negative impact. Recovery from this stage will take a long time for the world.

 

What is the impact of the virus on oil prices?

The biggest factor that has thrown the industry into a huge downtrend is because the prices have come down drastically. The entire gas and oil sector is now in a turmoil. There are many companies which are almost fighting to survive. Around the world, several news have surfaced regarding the shutdown of many oil wells. Even the wells which were responsible to produce 1 million barrels every week, are closed now. This is because the cost of shipping the oil is higher than the price at which it is being sold currently.

Jeffrey Currie, head of commodities at Goldman Sachs, tells us that “it is going to permanently alter the energy industry and its geopolitics” and “shift the debate around climate change”. At the same time, demand for the supply for oil has decreased by significant numbers. Due to the pandemic, majority of the countries had to announce total lockdown procedures. Mostly in the USA and many European countries. That is why people are confined to their homes for more than a month now. This is a great shock that hit the industry in a manner which no one ever predicted. That is why the numbers of the oil prices have come down quite astronomically.

The pandemic continues to be a threat to the entire world right now, which does not dictate a specific time when the situation will improve. The use of fossil fuels has come down at least by 65% in the last two months. If the situation does not improve, then the numbers will be hurting the entire oil and gas industry even more.

You need to keep in mind that, the aviation industry has led the demand for oil supplies higher than any other industry over the last few years. But, the longer we are at our homes and not able to travel, the aviation industry will not resume. This will directly affect the entire oil industry even more in coming months of 2020.

 

Price Chart of Oil industry in the Last Two Months

The price of the oil was hovering around $60 each barrel at the start of the year. But, the price fell to less than $30 below zero by the middle of March. This is for the very first time that oil prices have turned negative like this. This concerning negative slide in the market has raised huge concerns in the oil and gas industry. As the Corona virus pandemic continues to decimate the global economy, oil prices show no sign of improvement, whatsoever. We mentioned in the revious section, the demand for oil has decreased dramatically. Right? However, Russia, Saudia Arabia and other oil manufacturing countries of the world are trying to cut down oil productions.

But that is not the problem. The major problem currently is that, the world is running out ways in which all of this oil can be used. With more than 100 million barrels being manufactured, even after a cut in the production, companies cannot sell their product to the world. Companies who had contracts till June traded their oil at only $22 per barrel, which is less than 60% of the price they were getting before March.

Aaron Brady, the vice president for Energy Oil Markets Services at IHS Markit, stated that “the system is seizing up. If you are a producer, your market has disappeared and if you don’t have access to storage you are out of luck.” It clearly shows that there is no other way in which the industry can actually help itself from this crisis.

 

Which countries have negatively affected?

Here is the list of the most badly affected countries due to the crash of oil industry – US and Canada – combined together, these two countries have more than 10 million people working in the oil and gas sector. That is almost 6% of the total employment force and it is likely to be affected majorly because of the crisis.

Russia – the pandemic has affected Russia majorly. The cuts on oil export have been painful for the country as its major exporters are China and other European countries. However, it has already concurred a loss of almost $50 billion.

Saudi Arabia – the oil export accounts almost 70% of the country’s earnings annually. With more than $500 billion in their wealth fund, the country can withstand the falling prices. But, it will not be long before they feel the heat as well.

Iraq – Iraq is currently the second-biggest oil exporter in the OPEC. With nearly 8% of the employment force directed towards oil and gas industry, the country had to cut a lot of jobs and reduce production to sustain the falling prices.

 

The future

Experts are having a difficult time to understand when the prices are going to improve. As the Covid-19 outbreak continues to affect the world, global economy is inflicting a lot of damage.

Only time will tell how the countries can come together and help each other to survive this current disaster and work for a better future. Besides the oil industry, how has COVID-19 affected the gold industry?

 

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