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Oil In The Time Of Pandemic & What Does The Future Looks Like

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Uploaded by : Petrolete

May 06, 2020

As Coronavirus is infecting millions of people, the governments all around the world have declared a world-wide lockdown. With billions of people are staying home to contain further outspread this virus, the global oil consumption dries up, leading to an economic slowdown. Refiners are processing much less crude oil, investors are bailing out of new projects, and prices are tanking. These scenarios don't paint a pretty picture of the oil industry. But, what is at the end of the tunnel? What happens to the oil industry after the pandemic? Will it ever be the same? 

As per the global oil and gas trading industry, oil prices have collapsed around 60% since the beginning of 2020, but there is hope that after the upliftment of the lockdown, people resume their routine activities, increasing the global oil consumption. But, who is to say that the oil industry will be the same?

Because for the First Time in History, the Oil Prices are Going Down

For the first time, the global oil demand has reduced, and lucrative returns on explorations projects have demolished. This threatens the golden era, which has made oil stocks the mainstay of the investment portfolio. What's more staggering are the facts that the fat rate of returns on oil and gas projects have slumped from a whopping 20% down to a mere 6%. The global oil and gas industry is not ready for such a downslide. 

The Oil Data Sparks Global Economic Concerns

Weak global economic data is pressuring oil prices exponentially. The global economy is in severe recession and recovery is unlikely to be quick as COVID-19 related restrictions are likely to extend for an uncertain amount of time. This certainly puts the entire global oil and gas industry at risk. In this emergent situation, the top oil and gas companies are hanging onto the hope that with the upliftment of the world-wide lockdown, oil and energy stocks will regain strength and show accelerant growth in the demand curve.

The Coronavirus and an Oil Glut Yield Chaos Worldwide

The coronavirus pandemic has affected the oil market in two ways - first, the decline in supply chain activities due to travel restrictions which limits the use of jet fuel - that means less global oil consumption. It has a straightforward effect on global oil and gas industry. Second, the stock market reaction to the outbreak of COVID-19 projects a depression in global oil demand over the long-term. As global concerns about the economy rise, the projections of the future oil demand curve declines, promoting flight away from energy industry stocks and further drawing down of prices.

The Equation is Pretty Simple - the Less People Travel or Drive, the Lower the Consumption

As the government continues to react to an abysmal economic forecast, the top oil and gas companies are trying to improve their situation. By waiting out the lockdown period, these companies are preparing themselves to come out stronger with new projects to increase global oil consumption. With an emergent need to balance out the demand and supply of oil, the government, along with the top oil and gas companies, are enforcing a change is a policy that will upend the demand curve.

But, Will it ever be the same?

Whatever happens, the oil and gas industry will never be the same, at least for a very long time. The companies that will emerge from this epidemic will not be the same. A radical change is likely to be seen in restructuring and exploration projects. Global oil and gas industry experts say that climate change will also take a different course after the crisis is averted. While the world economy continues to burn oil after the coronavirus pandemic fades, the world may never consume as much oil as it did last year.

Having said that, the question is, how long is this depression going to last? How long will it take for global oil consumption to come back to normal? These questions remain unanswered, but one thing is for sure - coronavirus has undoubtedly made a dent in the global economy. And not just oil, but other manufacturing units are also to suffer from the outspread.