The ongoing Coronavirus pandemic has caused a lot to change around the world and every industry has been hit hard. But perhaps the one industry that has taken the biggest hit is the oil and gas industry.
Decreases in Demand and Price
With the Coronavirus causing a historic drop in demand, this year has been volatile for the oil and gas industry. Due to the global shutdown, lack of economic activity, the decline in air travel and spike in unemployment, the demand for crude oil was almost nonexistent. Situations like this makes the price of gas decrease dramatically for customers. However this has a negative economic impact on the industry as a whole. Some experts say that the biggest and most significant impact of the pandemic has been the price crash of oil in such a short time.
Between January of 2020 and March of 2020, oil prices had already declined by about 33%. Then, with the pandemic occurring shortly after–starting mid-March–there was an additional %18 decline in oil prices. To put this into perspective, in January of 2020 the price of a barrel of crude oil was $67.05. By March of 2020 the price of that same barrel of crude oil crashed down to $30.00. Additionally, due to the price of oil crashing in such a short time, stock prices of major oil and gas companies have decreased by billions of dollars.
Litigation and Bankruptcies
Work associated with the oil and gas industry is considered essential by the government–deeming them exempt from lockdown measures. However, as a result of the spread of this virus, several pipeline companies are being forced to slow down production or stop all together. Continued operations have become difficult due to layoffs, sickness and even bankruptcies. The main trigger for bankruptcies is derived from lender conflict. Some oil producers rely on reserve-based loans: when borrowing is based on the value of the producers’ reserves. Therefore, when oil prices decline it reduces the producer’s capacity to borrow and repay, thus triggering litigation or bankruptcies.
Overview
First and foremost, the pandemic is a humanitarian challenge, as well as an unparalleled economic one. All industries have been impacted both short term and long term but have gone to great lengths to safely and successfully operate and rebuild. There is no doubt that the oil and gas industry will reconfigure–when that happens, it will depend on supply, demand, investors etc.
Tiger General is the Future
In any case, this crisis will lead to a movement that will cause permanent shifts within the industry–shifts that will hopefully lead to a better future with more opportunities.
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