Unprecedented drop in oil demand . . .
The first quarter of 2020 saw global oil demand fall by 10 million barrels per day (bpd), or 10 per cent, as China, the worlds’ largest oil consumer, slashed its demand. With mounting travel bans and other lockdown measures across the globe as COVID-19 spreads, oil demand is expected to drop by nearly 20 million bpd, or 20 per cent, from April 2019 levels. Concurrently, Russia and Saudi Arabia are continuing to pump oil, driving oil prices down below US$20/barrel this week (prices were nearly US$70/barrel in January). The low prices are not stimulating demand given current conditions and are putting pressure on energy producers with narrow profit margins.
Investors are not happy . . .
Due to widespread uncertainty within the industry, companies in Asia are rethinking their global investment strategies. Pertamina, Indonesia's state-owned oil company, is considering reversing planned investments to the tune of C$11 billion in 2020. With some exceptions, Chinese oil companies are also considering cutting spending, and the Chinese company CNOOC has already announced it will postpone its drilling plans off the coast of Newfoundland & Labrador. Most analysts believe the drastic demand reduction will have a permanent effect on the industry as multiple factors are likely to reduce companies' and individuals' dependence on transportation.
Canada banks on long-term stability in oil markets . . .
Earlier this week, TransCanada Corporation announced that it will move forward with the Keystone XL infrastructure project. Alberta’s government invested C$1.6 billion to help the company and will provide a C$8.5-billion loan for the C$20-billion project. While the decision promises to create thousands of well-paying jobs, the government is taking a risk by investing at an uncertain time for the industry. Most Canadian oil companies would break even with oil prices around the upper thirties $US per barrel, and if prices remain much lower, companies will be forced to cut production and many could shutter in the second half of the year.
- Nikkei Asian Review: Falling commodity prices deal blow to Asia's oil and metals companies
- The Straits Times: For oil, April may be the cruelest month for decades to come
- Financial Post: Oil stocks surge after Keystone deal, but sector isn't out of the woods yet