The ongoing COVID-19 pandemic has hit every industry hard, but perhaps the one industry, which has taken the biggest hit, is the global oil and gas industry.
This happened for two primary reasons:
First, the historic drop in global oil demand in a very short period of time. The oil demand is correlated with economic growth; the Chain reaction and the measures taken Around the world to mitigate the spread of Covid-19, people are staying home, no flaying, no cars, factories utilize oil are producing less and ext.… . All of this with the market reactions, they have created a new reality in the oil and gas industry. Too much oil and the decline in demand cause a catastrophic collapse in prices.
The second, OPEC supply arrangement that has been withholding excess oil from the market for the last several years fell apart. On March 8th 2020, Russia and Saudi Arabia could not come to an agreement about how much additional oil to cut in the face of the COVID-19 pandemic and its economic impact. In early April 2020, President Trump helped broker a deal between Russia and Arabia Saudi amounting to a global cut of 9.7mbd, more than 20% but it was too late. The price of oil became negative in April20th. Oil production can be slowed, but not stopped completely and even the lowest possible production level resulted in greater supply than demand; and those who had oil production contracts lost a lot in order to get rid of their excess reserves .
The coronavirus pandemic has both long and short-term beneficiaries and victims. For example, if you are an oil tanker storage company, you have hit the jackpot. The price of oil has plunged, but the price of finding a place to put it has soared. More and more massive tankers are being used, hitting almost $300,000 at one point simply to hold the oil. Other tankers are busy transporting it to buyers such as China, which benefits from prices ever seen in the past two decades.
This pandemic is highlighting the strengths of some and the vulnerabilities of others. The oil-exporting developing countries’ economies are facing huge shocks and the main reason is the dependence of many of these countries on a single commodity for their exports and revenues renders them extremely vulnerable to market volatility. Algeria is one of these countries that oil and gas make up over 70% of total merchandise exports.
Fortunately, Oil has climbed 75 % since the start of November as major economies vaccinate their populations and reopen after lifting the quarantine and the worldwide oil producers, led by OPEC, cut production by roughly 20 million barrels per day (BPD), roughly equal to 20% of global daily supply. For the first time in this year, the price of Algerian oil exceeds 63$ a barrel. moreover, the projections of the US Energy Administration give indications that oil prices will remain above at least 60$ in 2021, with higher levels in the second half of this year. Which will generate more than 30billion$ in revenues for Algeria. That will be an oxygen dose to the country in a very sensitive circumstance.
To conclude, the oil and gas industry has experienced more uncertainty in 2020 than ever before; these uncertainties demand business agility and diversification of the government’s economy so that it does not depend entirely on natural resources. The Corona Virus has been a cardio shock for Industry, so now than ever before. Let’s take a look at the key lessons oil and gas companies should take away from the volatility of 2020 to be better positioned for the next years.