Oilfield Technology - May/June 2020

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Laura Dean, Editor
May/June 2020 Oilfield Technology | 3
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A s we enter June of 2020, amongst all the uncertainties,
one thing is clear: this year will be one for the history
books. In 50 years or so time, children at school will be
learning about this year’s events and studying their short and
long-term effects. The topic of COVID-19 and its social, political
and economic ramifications will be as synonymous with history
classes as the study of the World Wars and the Cold War is now.
However, one historic event that may not be talked about in detail in the classroom,
but will never be forgotten by the oil and gas industry, is when the price of oil crashed.
On 20 April 2020, the price of US West Texas Intermediate (WTI) oil fell into negative
territory (-US$37/bbl) for the first time in recorded history due to depressed demand
and insufficient storage capacity. The price of oil had been falling steadily since the
initial outbreak of coronavirus in Wuhan, China at the end of 2019 (to read more on the
impact of COVID-19 on the Asian upstream oil and gas market, you can turn to pg. 10
and read our latest regional report). As many countries were called into lockdown
as a result of the spread of the virus, demand dropped but producers continued to
pump crude oil from their wells, saturating the market until pipeline and terminal
storage could not contain the surplus oil. This resulted in producers paying buyers to
take barrels of oil off their hands, causing the negative pricing. Other factors, such as
the Russia-Saudi Arabia oil price war, also had a major impact on the falling prices,
ultimately causing the market to crash.
The US’s oversupply of oil was particularly acute, which is why WTI was hit the
hardest. However, no oil price was left unscathed by the crash; Brent oil, for example,
fell to US$18/bbl, having fallen two-thirds of what it had been in January 2020.
Fortunately for the industry the oil price rebounded fairly quickly. Less than
a month after negative numbers were first reported both Brent and WTI rose
above US$30/bbl on 18 May 2020, primarily as a result of OPEC+’s supply cut
agreement coming into effect. This was further supported by three members
of OPEC+, Saudi Arabia, Kuwait, and the UAE, announcing that they will enact
deeper-than-agreed production cuts starting from June 2020. Although prices are
still far below what both WTI and Brent were trading for at the advent of 2020, the
sanctioned cuts, combined with non-member shutdowns and the slow reduction of
lockdown measures around the world, has resulted in the successful limiting of the
global oversupply.
As the last month has progressed, the oil prices have fluctuated daily. However, the
market has remained predominately bullish, with the price now in the high US$30/bbl.
Whether this continues to be the case is to be seen as fears of a second spike in
corona cases remain. This will arguably force much of the global population back into
lockdown, deflating demand more.
By now we have all got pretty good at ‘waiting and seeing’ what will happen: when
we can visit our friends and families, when we can return to work, when our children
can return to school, and so on. But finally, there seems to be some positive news for
the oil and gas industry. In the meantime, to make sure you don’t miss out on any of
the latest updates on the oil price and other industry news be sure to follow us on
social media and sign up to receive the next issue the moment it comes out!
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