IEA: Oil Industry Experiencing 'Shock Like No Other'

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--The global oil industry is "experiencing a shock like no other in its history" due to the continuing impact of the COVID-19 pandemic that will impact all of the supply chain and spill over into other energy sectors.

The stark outlook comes from the International Energy Agency (IEA) which acknowledged that while the oil world has seen many shocks over the years, "none has hit the industry with quite the ferocity we are witnessing today." Oil demand has collapsed along with oil prices. The situation is only exacerbated by the ongoing oil price and productivity war between Saudi Arabia and Russia.

"As markets, companies and entire economies reel from the effects of the global crisis caused by the coronavirus (COVID-19) pandemic, oil prices have crumbled," the IEA reported. "The impacts will be felt throughout oil's global supply chains and ripple into other parts of the energy sector. Pressure is coming from all sides: a precipitous decline in global oil demand as the pandemic has slashed fuel consumption, especially in the transport sector, aggravated by a supply shock due to the end of restraints on production from OPEC producers and Russia (OPEC+). The scale of the collapse in oil demand, in particular, is well in excess of the oil industry's capacity to adjust."

Continued lockdown across the globe is only going to make the oversupply and storage problems worse.

The IEA said: "With 3 billion people around the world under some form of lockdown because of the coronavirus, one of the traditional stabilisers for the oil market is missing. Low prices usually stimulate a reaction from consumers, but such a boost to demand is highly unlikely this time around, at least for the duration of the global health emergency. Instead, a rapid build-up of oil stocks is starting to saturate available storage capacity, pushing down prices further."

Industrial Info has been tracking the massive cuts in project spending by all of the oil majors in recent weeks. Last week, Europe's largest oil producer, Equinor (NYSE:EQNR), cut spending and costs by $3 billion this year, citing the COVID-19 pandemic and plummeting oil prices. Exxon Mobil Corporation (ExxonMobil) (NYSE:XOM) (Irving, Texas) also confirmed 2020 capital spending cuts of $10 billion, a 30% reduction. For additional information, see April 7, 2020, article - Equinor Cuts 2020 Spend By $3 Billion over COVID-19 and Collapsing Oil Prices and April 8, 2020, article-- ExxonMobil Lops $10 Billion Off Planned 2020 Capex, Targets Permian Basin

Speaking to Reuters, IEA executive director Fatih Birol said that a potential OPEC+ deal to cut production will not be enough to solve the long-term damage caused. Even cutting production by 10%--or 10 million barrels per day (BBL/d)--oil inventories will still increase by 15 million BBL/d a day in the second quarter.

"This would mean that there will still be huge pressures on global oil markets. Monday's meeting with OPEC+ countries can well be a good start, but even the numbers people are talking about may not be enough to find a solution to the problem. It would only help to mitigate the damage we are seeing."

He urged Saudi Arabia to take the lead in ending the oversupply. "Saudi Arabia, which has been a stabiliser of oil markets for many years, can once again play a constructive role and as chair of the G20 can bring all key economies of the world, producers and consumers together, to have a dialogue to take measures to try to stabilize the oil markets."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Our European headquarters are located in Galway, Ireland. Follow IIR Europe on: Facebook - Twitter - LinkedIn For more information on our European coverage send inquiries to info@industrialinfo.eu or visit us online at Industrial Info Europe.