The world May never recover its oil thirst after Coronavirus crisis

The COVID-19 pandemic ruined the oil demand, as well as demand of jet fuel because a huge number of people worldwide, stay home. Still, there is no guarantee it will ever recover completely regardless of the lowest prices. The global oil industry is energizing the crisis effect. However, staff members keep working remotely from home during the outbreak. Global travel stays unusual. People living in once polluted cities, now experiencing the best feelings of blue skies, and now they demand more strict emissions controls and encouraging the administrations to intensify efforts to combat the climate crisis.

These types of changes might come to encourage investors across the world to dump their oil assets that are gaining speed before the current oil price crash. In contrast, maintainable energy investments appear to hold up comparatively well regardless of stock market instability. All these statistics revealed that international oil demand never returns to its record high level of 2019, a terrifying scenario for all oil companies as well as their employees from Texas to Western Europe, and countries like Iraq, Russia or Nigeria which economies mainly depend on selling crude.

The worldwide head of sustainability research at BNP Paribas Asset Management in Paris, Mark Lewis, said, according to his thought the pressure to speed up the forces driving the evolution of energy will only rise as a result of this crisis. The threat of the 2nd wave of the novel coronavirus in the fall also emerges for oil producers. Oil prices already fell to their lowest levels in the last few decades as producers contend with excessive supply and, on the other hand, the worst demand in history.

COVID-19 changed many assumptions about the future of oil

Brian Gilvary, BP Chief Financial Officer, said that there remains an extraordinary level of ambiguity about the near-term stance for prices and demand of the product. Before the coronavirus outspread, experts forecast that the peak in demand for oil might arise around 2040 because of the surge in electric cars, improved energy efficiency and a switch to alternate sources. But unfortunately, the pandemic forced several assumptions regarding the oil future to tossed out.

The coronavirus crisis might take the oil industry many years to revive back as governments across the world put their economies into an unfathomable freeze to combat the spread of the epidemic due to which demand for energy collapsed. The International Energy Agency (IEA) expects worldwide oil demand to plunge by a record 9.3m barrels a day in 2020, the result of efforts to restrict the virus in 187 countries. IEA projected at the start of this month that demand would drop in April to the lowest level seen in 1995 when the international economy looked completely different.

Such changing aspects – along with the supply surplus that leads to a short-term but brutal price war between Russian and Saudi Arabia that flooded the oil markets. The previous week, the United States oil prices turned negative for the first time in history as companies paid people to take crude oil off their hands, with storage capacities filling up rapidly.

Global Oil Demand hit a record high in 2019

The Paris-based agency IEA forecasted a historic oil demand plunge due to the pandemic.

The world May never recover its oil thirst after Coronavirus crisis

Source: International Energy Agency

To restore the confidence in the market and start pushing prices up again, the oil supply needs to put down instantly and needed a historic cut than the foresaw by OPEC and its partners from Friday. It clearly signifies to shut down oil wells, and several companies go towards bankruptcy. On the other side, the industry players need excessive oil demand to start the recovery process in the 2020’s second half. Head of crude oil research at HIS Markit, Jim Burkhard, said that the main question arises how instantly the coronavirus pandemic contained globally and comes to an end because it commands the degree of movement across the world.

New Behaviors in the market

The prediction of Wall Street reveals that the oil demand to recover completely in one or two years depends on two major assumptions: that worldwide governments will instantly relax rules keeping citizens indoors, and that economic activity will recover quickly once restrictions lift. According to HIS Markit, in this case, oil demand might return to 2019 levels within two years.

There is some indication to support this optimistic view. Goldman Sachs notes that weekly refinery statistics specify that demand of oil in China – the biggest oil consumer of the world – is only five percent down relative to pre-crisis levels, signifying a robust recovery. However, HIS Markit also demonstrated an alternate scenario in which governments gradually lift quarantine rules or a 2nd wave of coronavirus hits.

Read Also: Trump ordered Chevron to stop oil production in Venezuela

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