The impact of Covid-19 on Oil & Gas Market

 

price decrease

 

Last month the price of oil dropped by over 30%. That’s the worst oil market shock since Saddam Hussein invaded Kuwait in 1991, kicking off the Gulf War.

The precipitous drop in global oil prices was prompted by two factors: long-term fears of declining demand as a result of coronavirus, and the failure of the OPEC+ group to come to an agreement on production cuts, prompting Saudi Arabia to ramp up production and effectively declare war on Russia and other major producers.

With coronavirus continuing to spread, there’s little likelihood things will improve any time soon. For producers, this means lean times and strained budgets. Strengthening those assets as safety procedures, and operations became a high priority investment.

 

The oil drop

While the stock market largely continued its blissfully unaware rise through January and February, analysts have been warning that the shortfall in demand created by coronavirus was going to have knock-on effects in the global economy.

We’re now starting to see that impact:

  • Supply chain disruptions,
  • Stock market panic,
  • Lowered demand for oil in some of the world’s biggest economies.

 

What happens if supply increase and demand drops?

The sudden drop in prices was kicked off by the splintering of the OPEC+ agreement between Russia and the members of OPEC (most notably Saudi Arabia). With Russia unwilling to agree to further production cuts, the deal fell apart, leading the Saudis to promise increased production, swamping markets with new supply.

 

This is what happens when supply increases at the same time as demand drops.

The world market is now awash in oil, and very few people are buying. 

There are a variety of theories for why the Russians and Saudis chose to start a price war.

The most plausible explanation is that both Russia and Saudi Arabia are engaged in a conflict not for price, but for market share. And thanks to coronavirus, it’s a war for the share of a declining market. Rather than sharing the burden of dropping demand through OPEC+, each is trying hard to force the other to bear more of the cost. If they can seize market share, they might be able to maintain a decent revenue stream even with lower oil prices.

Today, the evidence suggests that Russia and Saudi Arabia are not focused on shale, and more on preserving their markets in a challenging time. 

 

Companies in the sector are fighting the spread of coronavirus.

Many companies have donated money to the World Health Organisation’s (WHO) Covid-19 Solidarity Response Fund, despite having recently made cutbacks.

Companies are implementing new protocols to keep workers safe. Social distancing measures have led to massive staff cuts at offshore installations in the North Sea. Maintenance projects there and worldwide have been replanned for when the pandemic will be under control.

Companies have also started offering free fuel to emergency service vehicles around the globe.

As time passes the sector will be facing even harder challenges but today the sector is showing off some serious ethics in helping corona spread to stop!


Safety has always been part of our core, our value. Today this sector (and many others), and the companies that are part of it,  are facing the consciousness of the need on doing everything they can to ensure forefront and modern safety technology. 

Check out Prometheus Group Passive Fire Protection Solutions

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