Oil industry ‘in the midst of a historic meltdown’ due to COVID-19 pandemic

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THE OIL industry is ‘in the midst of a historic meltdown’ amid the coronavirus pandemic regards to prices and demand for oil, gas and related products.

After pointing out last week that it is as possible for Brent prices to briefly go to $10 per barrel as it was back in 1986 or 1998, JCB energy stated on 30 March: “The negative revisions could keep on coming. Oil prices dropped sharply during midday trading on Monday.

“‘For us, this is simply reflecting the increasing awareness that oil demand is breaking away, probably by much more than the 20% we have currently in our books for April/May.'”

In a separate note, the company stated: “‘The coming weeks will see unprecedented pressure on oil producers.

“But the market is collapsing so fast, that it is really more about the logistical challenge to place oil and shut in production in a smart way, rather than the financial impact.”

ExxonMobil and Chevron have suggested would be cutting down their budgets in the wake of the current market conditions.

Chevron Chairman and CEO Michael Wirth commented: “Given the decline in commodity prices, we are taking actions expected to preserve cash, support our balance sheet strength, lower short-term production, and preserve long-term value.”

ExxonMobil has announced they are looking to ‘significantly reduce’ spending as a result of market conditions caused by the COVID-19 pandemic and commodity price decreases.

Goldman Sachs estimates that Chevron needs $50 per barrel in order to cover spending and its dividend while ExxonMobil needs approximately $70.

Examining the market conditions, Nick Cunningham of Oilprice.com wrote: “The majors are relatively more insulated from the downturn than small and medium-sized shale drillers because they have downstream refining and petrochemical assets that have typically performed somewhat better than upstream units when prices fall.

“Refineries, for instance, spend less on oil during the downturn, and low prices also translate into a boost in sales of refined products.

“But the majors do not have that cushion this time around.

“We are in the midst of a historic meltdown – a supply crisis and a demand event with no precedent.

“Estimates vary, but oil consumption could be off by 10 million barrels per day (mb/d), or more.

“It doesn’t matter how cheap crude is, if people are not driving, flying or consuming anything aside from the bare essentials, there is no demand boost from low prices.”

In a statement concerning an update on their first quarter, Shell commented on 31 March: “As a result of COVID-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products.

“Furthermore, recent global developments and uncertainty in oil supply have caused further volatility in commodity markets.

“The impact of the dynamically evolving business environment on first quarter results is being primarily reflected in March with a relatively minor impact in the first two months.”