Coronavirus impact on the oil Industry

By the numbers: Covid-19 has killed over 217,000, per Johns Hopkins data as of April 29th. More than 928,000 individuals have recovered from the virus. The US has reported the most confirmed cases in the world - more than 1 million from nearly 5.7 million tests - followed by Spain with over 232,000 confirmed cases.

Although the numbers of confirmed Coronavirus cases and the number of deaths caused by the virus continue to increase and the socio-economic impact of the Coronavirus outbreak as well as the measures taken by governments in an attempt to contain the outbreak continues to escalate, the number of recoveries has also been on the rise. In addition, the spread of the virus, in general, is slowing down in certain countries. Therefore, during the month of April, a number of governments have started easing lockdown restrictions and others introduced their reopening plans for the near future.

The coronavirus pandemic has taken no prisoners when it comes to the damage it has seemingly inflicted upon every industry under the sun, from hospitality and travel to retail and entertainment. The pandemic also hit the oil and gas industry hard, posing questions about the uncertain future of the once booming fossil fuel industry.

The Coronavirus pandemic has reduced demand for oil by close to a third, raising concerns that a surplus of unwanted supplies will overwhelm global storage capacity. The world’s oversupply of oil is particularly acute in the US, which produces around 10m barrels of oil every day. Oil storage tanks have filled up, leaving oil companies desperate to sell their surplus barrels. And consequently, on April 20th, US oil prices took a deep dive to their lowest level in history, dropping into negative pricing. First dropping below $5 a barrel, it hit $0.01 a barrel before falling to as low as negative $40 and eventually settling at negative $37.63, the lowest level recorded since the New York Mercantile Exchange began trading oil futures in 1983.

Although in other regions, including the UK, oil prices remained above zero, in part because they face lower transport costs and easier access to ports, no oil market has remained unscathed. The international benchmark oil price, known as Brent crude, while currently stands above $20 a barrel, plunged to an 18-year low previously this year.

While most Traders continue to believe the only resolution would be for production to start shutting down or throttling back, most oil companies remain hesitant to make the first move. Although, oil-producer group OPEC and Russia finalized an agreement on April 12th to cut down production by 9.7 million barrels per day, the single largest output cut in history, starting early May.

Nevertheless, since the coronavirus outbreak started slowing down in certain countries and the number of daily deaths caused by the virus has been decreasing in most countries, a number of governments have begun easing lockdown restrictions and reopening the economy.

15 US states including Florida, Texas, Georgia, and Montana as well as a number of countries around the world such as Nigeria, India, Australia, and New Zealand already permitted certain businesses to reopen and have begun loosening lockdown restrictions in general. In addition, the French and Spanish governments announced on April 28th their plans to begin cautiously easing lockdown restrictions starting early May in order to avert the risk of economic collapse.

Furthermore, AirAsia, US airlines, Delta, and Wizz Air have announced in recent weeks that they are expecting to resume their flight schedules soon.

As for the Middle East, while countries such as the UAE, Jordan, and Saudi Arabia have already begun gradually easing lockdown and reopening businesses as well, the first Coronavirus case in Yemen was only confirmed on April 10th. In addition, the International Rescue Committee as well as health experts continue to express their fears that the Covid-19 pandemic could spread like wildfire and result in bloodbaths especially among displaced populations without access to adequate health care in such countries. Yemen and Syria, among many other countries around the world, continue to face acute shortages of Coronavirus testing kits which leave the extent of the outbreak in these areas, until now, unknown to a certain extent as well.