The effects of the COVID-19 pandemic are being felt in every part of life, and the oil industry is no exception.
Perhaps the most obvious effect is a drop in demand, due to people working from home instead of commuting, or being placed on furlough. Add to that the fact that only essential travel is currently permitted, and that factories have halted production. The question now is whether the oil industry will need to adapt to this environment, not only during the pandemic but afterwards too.
Will lower oil prices lead to increased demand?
The combination of COVID-19 and a price war has already caused falling oil prices. Will there be a lasting effect on demand? According to the Guardian, some say that 2019 will prove to be when oil demand peaked, while others argue that the oil industry will recover fully, as it always has in the past. Oil prices are the lowest they have been for two decades, and this could actually cause demand to increase.
Will a permanent change in behaviour lead to reduced demand for oil?
It is possible that changes in human behaviour will remain, once the worst of the COVID-19 crisis has gone. More people may work from home, and might also shop more locally – or online. Perceived risks could also lead to less global travel, and improved communication technology could also reduce this need.
Will increased demand lead to higher oil prices?
The Independent cites Jeff Currie of Goldman Sachs, who believes that the current drop in demand could actually lead to a significant rise in 2021 oil prices. He and his team even say the industry might not even be capable of meeting such a high demand.
What about oil industry employees contracting COVID-19?
In mid-March, Equinor, a Norwegian oil company, announced that one of its North Sea oil rig workers had tested positive for coronavirus. The employee was taken to shore and placed in quarantine, and the company have been closely monitoring the situation since. Equinor has since reduced non-essential tasks, and has asked staff to work from home where possible.
Other oil companies have also introduced travel restrictions. One of the first to suspend employees’ travel was Royal Dutch Shell, and others followed suit. Chevron, a US-based oil company, has deferred employee travel, and was one of the first to implement home working. Chevron’s London employees were sent home in late February after one experienced possible COVID-19 symptoms.
How long will oil prices take to recover?
A poll carried out by Verdict predicts that oil prices will remain unstable for a minimum of six months after the pandemic subsides. Around two thirds (67%) of poll respondents expected the impact to last for six to twelve months after the pandemic. Of those, 31% predict this to last for more than six months, while 36% believe that prices will remain volatile for over a year.
Jeff Currie of Goldman Sachs thinks that the higher post-crisis oil prices he predicts will reduce business travel, but warns that as much of the world has so far only experienced weeks of coronavirus lockdown, the long-term effect remains to be seen. “We have no idea” he concludes.
