As we enter June of 2020, amongst all the uncertainties, one thing is clear: this year will be one for the history books. In 50 years or so time, children at school will be learning about this year’s events and studying their short and long-term effects. The topic of COVID-19 and its social, political and economic ramifications will be as synonymous with history classes as the study of the World Wars and the Cold War is now. However, one historic event that may not be talked about in detail in the classroom, but will never be forgotten by the oil and gas industry, is when the price of oil crashed.
On 20 April 2020, the price of US West Texas Intermediate (WTI) oil fell into negative territory (-US$37/bbl) for the first time in recorded history due to depressed demand and insufficient storage capacity. The price of oil had been falling steadily since the initial outbreak of coronavirus in Wuhan, China at the end of 2019 (to read more on the impact of COVID-19 on the Asian upstream oil and gas market, you can turn to pg. 10 and read our latest regional report). As many countries were called into lockdown as a result of the spread of the virus, demand dropped but producers continued to pump crude oil from their wells, saturating the market until pipeline and terminal storage could not contain the surplus oil. This resulted in producers paying buyers to take barrels of oil off their hands, causing the negative pricing. Other factors, such as the Russia-Saudi Arabia oil price war, also had a major impact on the falling prices, ultimately causing the market to crash.
The US’s oversupply of oil was particularly acute, which is why WTI was hit the hardest. However, no oil price was left unscathed by the crash; Brent oil, for example, fell to US$18/bbl, having fallen two-thirds of what it had been in January 2020. Fortunately for the industry the oil price rebounded fairly quickly. Less than a month after negative numbers were first reported both Brent and WTI rose above US$30/bbl on 18 May 2020, primarily as a result of OPEC+’s supply cut agreement coming into effect. This was further supported by three members of OPEC+, Saudi Arabia, Kuwait, and the UAE, announcing that they will enact deeper-than-agreed production cuts starting from June 2020. Although prices are still far below what both WTI and Brent were trading for at the advent of 2020, the sanctioned cuts, combined with non-member shutdowns and the slow reduction of lockdown measures around the world, has resulted in the successful limiting of the global oversupply.
As the last month has progressed, the oil prices have fluctuated daily. However, the market has remained predominately bullish, with the price now in the high US$30/bbl. Whether this continues to be the case is to be seen as fears of a second spike in corona cases remain. This will arguably force much of the global population back into lockdown, deflating demand more.
By now we have all got pretty good at ‘waiting and seeing’ what will happen: when we can visit our friends and families, when we can return to work, when our children can return to school, and so on. But finally, there seems to be some positive news for the oil and gas industry. In the meantime, to make sure you don’t miss out on any of the latest updates on the oil price and other industry news be sure to follow us on social media and sign up to receive the next issue the moment it comes out!