While the coronavirus pandemic keeps affecting the global economy, major oil industry producers and traders are expecting a dark future for the worldwide fuel demand. The novel coronavirus has reduced oil consumption as billions of people worldwide restricted their movements under safety guidelines. The Organization of the Petroleum Exporting Countries (OPEC) released its monthly report on Monday in which it said, “Risks remain elevated and skewed to the downside, particularly in relation to the development of COVID-19 infection cases and potential vaccines.”
The pandemic and the oil industry
So far, the virus has infected more than 29 million people with about 925,000 losing their lives in the last nine months as reported by Reuters. There are several vaccines on trial, but none of them has achieved complete victory over the coronavirus and is mostly months away from mass distribution to prevent any future outbreaks. Amidst this, the fossil fuel industry estimates a job cut of about 118,000 people between March and July. Such losses in the oil, natural gas and coal industry represent a depreciation of 15.5% in employment in these sectors. According to a new report by BW Research Partnership, a California-based market research firm, the oil industry lost most workers amongst all fossil fuels, shedding roughly 69,400 jobs or 17% of the pre-pandemic workforce.
OPEC sees a poor global demand for oil and says that the world demand would fall by approximately 9.46 million barrels per day (BPD) this year, an increase of about 400,000 BPD from its previous report. The outlook for Asian countries is cut beyond China. The global prices of oil shot down in April with the US crude futures falling up to a negative of -$40 at one point. The prices of both Brent and US Crude improved, but they are still trading lower than $40 due to weak demand. According to a 2020 outlook by the Energy giant BP projects that the coronavirus can slash oil demand “by about 3 million BPD by 2025 and by 2 million BPD by 2050.”
A flare of optimism
The president of Lipow Oil Associates, Andrew Lipow said, “As economies around the world opened up, there was optimism and enthusiasm that we would just head back to normal over some period of time.” Similarly, Vitol chief executive Russell Hardy also exhibited a sense of positivity in his statement in a global petroleum conference in Singapore, saying, “Oil demand in transportation sectors, with the exception of jet fuel, could return to pre-pandemic levels by the fourth quarter of 2021. That could help drain a surge of inventories, which grew by roughly 1.2 billion barrels in tanks and in water storage.” He also added that about 300 million barrels had been drawn from this year’s peak, and the market is slowly “chewing through that excess inventory.” According to US Energy Department figures, the product supply has been 16% down that of last year, and refiners worldwide are reducing the processing, due to weak overall demand.
The Policy Times takes on this
- The oil industry is going through difficult times, but most experts believe that the most shock that the oil markets will see, will be in the next 12-24 months.
- If there are any further spikes in the cases of coronavirus, it will further contribute to the projections of losses in the fossil fuel industry.
- The International Energy Agency is also set to bring out its projections for global oil demand, so it will further clarify our idea about the market conditions.