Oil crisis: Coronavirus could push consumption back decade - shock warning

As countries have responded to the growing spread of the virus with visa cancellations, travel bans, working-from-home, and quarantine measures, the impact on oil consumption have been sharp. Oil prices are down over 50 per cent, with an alleged “market share” war between Saudi Arabia and Russia, two of the lowest-cost producers worldwide.

The 2009 “mini-recession” experience, when consumption slumped by just over a 1 million barrels a day has already been exceeded.

Both the countries have threatened to ramp up production at a time of excess supply and falling consumption, with some global analysts even predicting prices last seen during the 20th century, in single digits.

The biggest oil traders in the world are predicting a demand contraction of between 4 million to 10 million barrels per day between now and the end of April.

At its peak, China knocked off 3 million barrels per day in consumption.

The world is looking at a demand contraction of over 10 million barrels per day by the end of this month.

With most restrictions in place until April 15th, Saur Energy International said: “It is safe to assume that no recovery would happen by then, only a slowing down of demand destruction.

“The implications for this demand shock are profound.

“On the industry side, one of the most commonly cited reasons being quoted for the price war, the destruction of the US shale oil industry, is one.

“The result of lower consumption is also bound to be reflected in lower emissions, which will give climate scientists and activists much date to measure and learn from.

“At least some cities might want to learn how to make these lower levels the new normal, even after ‘normalcy’ returns.

“The new changes in working styles, be it work from home or less travel, or less face to face meetings are bound to leave a lasting impact in terms of some permanent shifts.

“It will also showcase possibilities that were not being considered earlier for climate mitigation.

“Even steps being taken by firms and national governments to limit the sort of supply shocks they have suffered from the disruption to global supply chains could eventually see some manufacturing being done closer to markets, cutting down on emissions.

“A massive focus on public healthcare, and by association, the quality of other public services, is bound to lead to a reversal of the shrinking governments being favoured in many of the largest economies.

“It may lead to calls for higher direct government involvement in climate change issues too.

“The world, in other words, will change forever by the end of this year. Let’s hope the right lessons are learnt.”

This comes after the combined market capitalisation of London-listed energy companies Premier Oil, EnQuest and Tullow Oil has tumbled to less than £500m in the past week.

The three companies, once backed by a loyal band of retail investors in the UK, commanded a combined valuation as high as £17bn just eight years ago but have struggled since oil slumped from more than $100 a barrel in 2014.

The price crash, which has seen Brent crude halve in value since January to just $33 a barrel, now threatens to scuttle their plans to reduce debt should the coronavirus pandemic and price war keep oil markets under pressure.

“Now that we are in a $30-handle world, at least for the foreseeable future, the question around the more indebted exploration and production companies … is really one of survivability, and what equity dilution may occur in that quest,” analysts at Numis said.

This outlook is already being reflected in share prices, which plunged last week as the oil price crashed.

Over the past month, Premier has plummeted 85 per cent, while Tullow dropped 76 per cent and EnQuest fell 63 per cent. 

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