Actinoid Group Industry Updates

What does the future holds for Oil and Gas Industry as Oil falls to below $30/bbl as glut grows

Around 70% of our business is energy-related, every one of us affected by the price per barrel from layoffs to the cost of petrol on our budgets. The gas and oil industry's environmental impacts also have raised the question of whether an oil has a place in our world, whether other products can be used as a substitute for oil.

Historically crude oil and NGL production have been on an increasing track matching total oil demand. The oil price has moved from $25 per barrel to more than $160 per barrel between 1999-2008. As Asian economies become to be more dominant in their economic performances which have concluded in higher demand for energy products, such as China and India, the supply of oil and gas have failed to match the demand from those countries as production cuts by the Organisation of Petroleum Exporting Countries (OPEC) in the Middle East drove the price of oil to record heights. During this period natural gas spot price went from under $3 per million BTU to over $12 per million BTU. Shortly after that, a deep global recession throttled demand for energy and sent oil and gas prices into a precipitous free-fall thus the rise of oil and natural gas prices in the early 21st century set them up for a fall in 2014. stronger U.S. dollar was one of the principal reasons for plummeting natural gas and oil prices in 2014. Commodities are generally traded in U.S. dollars, which means there is a direct relationship between the dollar and oil prices. Federal Reserves have taken actions to strengthen the value of the U.S. dollar via reducing quantitative easing by setting high treasury yields. Federal reserves tighter practice of the monetary policy has led to price falls of many commodities, oil, natural gas, and non-ferrous metals which was reduced by early 2019.

What triggered the oil price plunge of 2014-2016 and why it failed to deliver an economic impetus Between mid-2014 and early 2016, the global economy faced one of the largest oil price declines in modern history. The 70 per cent price drop during that period was one of the three biggest declines since World War II and the longest lasting since the supply-driven collapse of 1986. There are many reasons that have affected the oil price plunge of the 2014/2016 period. An increase in U.S. shale oil production by increasing its efficiency gain has resulted in lower levels of break-even prices. Thus, It is safe to say that the first factor that has caused the oil price plunge of 2014-2016 was supply-side factors. Respond to increasing in supply-side factors of oil was unfortunately met by deteriorating demand from mid-2015 to early 2016 which is why the oil price plunge was accompanied by a slowdown in 2015 and 2016. Global economic activity is dependent on the export and import levels of countries. A sharp deceleration in oil-exporting economies dragged global economic activity down, but disappointing growth in oil-importing economies

The COVID-19 epidemic caused an enormous demand shock in the oil sector, resulting in a record drop in oil prices. Oil demand plummeted as governments throughout the world closed companies, mandated stay-at-home policies, and limited travel.

Due to these global economic activities, long term oil prices forecasts have predicted decreasing levels in oil prices. In these predictions, there are some factors that also limits increasing price level in the oil industry such as further gains in shale oil production, accelerated uptake of more fuel-efficient technologies, and policies supporting renewable energies. The 2014–16 oil price plunge has cast a long shadow for oil exporters. Significant declines in investment and output generally lead to weaker potential output growth over extended periods of time. Expectations of markedly lower-than-expected oil prices ahead underscore the urgency of reforms to restore growth and fiscal sustainability.

The pandemic crisis offers a glimpse into the oil industry’s future

Recent global pandemic Covid-19 has hit the markets quite hard as travel and broader economic activity across the world restricted, demand for transport fossil fuels has dropped. This reduction in demand is particularly notable in China, the world’s largest energy consumer, which last year accounted for more than 80 per cent of global oil demand. Gross supply levels have set at low levels below their usual rates, earth commodities and energy production levels have also been lowered down to 36%as well as global oil refining capacity to be reduced by 34%. The first quarterly results of 2020 roll in from most oil and gas companies, the full extent of damage to industry profits are starting to show.

This period has been especially hard for the oil and gas industry, reduced demand has resulted in oil's value and consequential price wars. Even though the supply-side of this industry was attempted to be limited by OPEC, failure of a common action has led the crude price to decline by 30%. Can the oil and gas industry survive this period as it has survived many periods of hardship us as the 2008 global economic crises?. Due to this unexpected pandemic and huge fall in global oil demand, companies and oil industry bodies are calling for governments across the world to put measures in place to support their respective oil industries.

So now the question in everyone's mind is how this pandemic will reshape its outlook beyond the need to weather a drop in prices to around $25 per barrel. Governments have gathered to limit the supply side of the oil and gas industry to attempt to control the oil prices not to further decline however key question for many analysts and companies affected is whether the size of the cuts agreed will be enough and in time to improve global oil balances to support prices above current levels. The oil industry is resilient and well-positioned to withstand this challenging environment and weather market volatility. For oil companies, the priority is to put the health and safety of their staff and customers first and ensure the safety of their business operations.