It is the morning after the night before. The UK has woken following the Prime Minister’s announcement of drastic measures to keep his country safe and strong as the Covid-19 outbreak continues to engulf all in its wake. Many a social media post has informed us that our relatives were called to fight in a war, and all we must do is stay inside to battle a war of a different kind – a medical one. The current feeling of people from almost every nation (perhaps 30 countries have reported no cases) in the world, is surely one of uncertainty and confusion as our daily lives, employment situations, and social interactions experience change.
The state of the global economy is far from what was forecast for 2020, and the oil and gas industry is taking a hit. The price of Brent crude fell to US$23.03/bbl in recent days, the lowest level since November 2002. Having been approximately US$60/bbl in January of this year, the decline is concerning, but analysts predict the price to continue to crash, with fears that US$10/bbl could be realised. Similarly, the US West Texas Intermediate has dropped to less than US$20/bbl, which is almost a low of 18 years.
Changes in production and demand due to the coronavirus pandemic are causing markets to be unbalanced. All over the world, refineries are cutting their processing of crude, with locked-down countries destroying the demand for fuels as airplane fleets are grounded and cars stay parked in driveways, only being used for small trips to supermarkets for the 'bare essentials'.
In addition, a price war between Saudi Arabia and Russia is causing further damage to the global oil market by flooding it with extra supply. At the start of March, a three-year agreement between OPEC and Russia came to an end on a sour note, with Russia refusing to back oil production cuts proposed by OPEC. OPEC retaliated by removing its own limits on production – essentially the collapse of the agreement means OPEC and non-OPEC producers can pump oil in whatever quantities they desire, adding to an already saturated market.
Due to this, the Energy Information Administration forecasts OPEC production in 2020 to exceed the actual call on OPEC, thus resulting in an increase in global inventories. With Russia refusing to support OPEC’s emergency production cuts, the market’s future is looking like higher oil price volatility, in addition to geopolitical instability, primarily between Saudi Arabia (largely considered to be OPEC’s de facto leader) and Russia as they race to grab a greater share of the market.
With the economy in dire straits, more importantly so too is the health of the global population. Currently over 700 000 people are infected with Covid-19 and over 34 000 dead, although these are figures that are changing by the minute.
With approximately three billion people working remotely from home, World Pipelines continues to keep you informed and up-to-date on all things midstream – from technical webinars, online conferences, and our smartphone App, there are many ways to escape the never-ending tasks of home schooling, DIY activities, and Zoom calls with the boss.
We will also continue to work closely with the industry to ensure that we bring you innovative new products to keep the industry well informed, especially in these unfortunate times when many of our long-standing partners have had to postpone or cancel key industry events.
All of us at World Pipelines send our thoughts and support to everyone in the world during this time. Stay safe and take care.