The Unsettling Oil and Gas Industry

August 8th, 2020
Oil and Gas

The Unsettling Oil and Gas Industry

August 8th, 2020
Oil and Gas

What companies and governments hadn’t expected has just occurred

Over the past few months we had been witnessing a substantial reduction in oil and gas industry value all across the globe. More and more companies were aiming for a higher sales pitch over the turn of the financial year but hit solid ground after the COVID outbreak which effectively put many companies into productive recession.

Many companies less optimistic about these turn of events seek the consulting of Maadico to increase their agility and Sustainability while trying to compensate for their shortcomings in the Marketing and sale departments.

Now however, many companies Including IHS have a more optimistic approach towards the oil prices saying that a standard Brent barrel of oil is set to sell at around $42 in 2020. They also believe that with a slight increase, companies will be able to sell at around $50 in early 2021.

According to OPEC analysts, the reason behind this might be a further reduction in production in Iraq and due to Saudi Arabia not implementing cuts to Asian countries. This comes after many months of economic uncertainty and stimulus packages supplied by the governments around the world to stop their manufacturers from bankruptcy, now despite the pandemic showing no sign of wanting to let down and with lockdowns still in effect, many specialists in the oil and gas business expect a substantial increase in fuel consumption during the summer with people planning to go on vacation.

How does that work you may ask? 

Due to the fact that people are reluctant to use public transport for travelling, many believe they will attempt to drive away by their cars. Cars consume a far greater amount of fuel per capita and this is what optimistically is supposed to keep the oil and gas industry from collapsing. 

Companies are probably over enthusiastic towards the theory but many would not risk their financial liability. Considering the fact that many restrictions are still in effect almost halfway through summer and the reduction in the supply and demand chain over the past 5 years, companies like Exxon Mobile have now declared that if the demand and thus the price of oil does not increase, 20 percent of the world’s oil and gas resources might no longer be viable for extraction and refinement.

What are the oil and gas industry is trying to do?

This oil and gas industry giant has not yet had to cut their dividend, a move which many believe would cost the company another $15 billion. Instead, they have made some readjustments in their financial discipline and have made alterations such as budget, job and retirement funds cuts.

In order to further exemplify as to the magnitude of the damages of this pseudo economic recession, by comparison of the EIA, the demand for Jet fuel on commercial planes has had a 70 percent decrease in comparison to the same time last year. Again, due to the lockdowns it is expected that the demand should experience a slow recovery to what it was once before. One has to take into consideration that halfway through summer, the travelling season, there has been no sign of event a marginal cure for the pandemic and it would’ve been the high season for both the airlines and the oil and gas companies around the globe.

oil and gas industry companies are facing unsettling turn of events because of covid.
Edmonton Industrial park.

The reduction in the demand for oil and gas industry has not only had a substantial economic effect on the non-state owned companies, but also on oil and gas exporting countries like Saudi Arabia, whose GDP relies up to 80 percent on their fossil fuel exports. They are expected to have to cut prices down again due to the lack of demand and the unexpectedly depressing recovery of the oil and gas demands around the globe. The country’s Aramco state oil company is expected to cut up to $1.08 if the situations were to continue like this and then, the other oil reliant countries would have to bring their prices even lower.

What lead to this unsettling in the oil and gas industry?

 Back in the 70s, OPEC was initiated for the oil exporting countries and with the Shah of Iran at the forefront for them to be able to control the price of oil and the amount of exports. This has led to a chain of events from the revolution of Iran to the 8 year long war between Iran and Iraq, two of the major oil exporting countries of the Middle East both situated at the vitally strategic Persian Gulf.

With both countries at war, they would gradually but surely reduce their oil and gas prices to ensure a steady flow of cash to support their war efforts, which would naturally lead other exporting countries to also bring down their prices to be able to keep up with the market.

Almost 40 years ahead and do we not only see that the socio-political relations of countries in the region has worsened, but also the countries using their oil prices as a form of economic pressure with one another. Add this to the COVID crisis we are currently facing and you will be able to         puzzle out which way things are going.

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