Oil industry

COVID-19 Fears sends Oil Industry into a Tailspin

The Oil industry was the latest victim to endure severe damages due to the Coronavirus pandemic. The COVID-19 crisis has affected a wide range of energy markets, such as gas, coal, renewables, but its impact on oil markets is predominant. Oil prices dropped to their lowermost levels in its history, sinking 300% into negative pricing as oil supplies overwhelmed the globe’s storage capacity. This is an unprecedented global impact due to the Coronavirus.

As per International Energy Association (IEA), global oil demand is at 99.9 million barrels a day in 2020, down around 90,000 barrels a day from 2019. Oil producers are literally running out of places to store oil, as the demand for everything from Jet Fuel to Gasoline is plunging. With the travel restrictions imposed as a response to the COVID-19 pandemic, refineries across the globe are decelerating their output and planning extensive maintenance. Oil refiners from Thailand to Texas are bracing for deeper output cuts.

In Asia, which shelters about a third of the worldwide refining capacity, a top Indian refinery has reduced its output to 25%-30%. Refineries in other Asian countries such as, Japan, Thailand & South Korea have already started to reduce its output and are looking for further reduction when the plants are shut for maintenance. As per Petroleum Association of Japan, after the run rates in Japan fell to nearly 7% for Q1 2020, the country has been considering more cuts. For instance, Hyundai Oilbank has plans to reduce its expenses by 70%.

Several refineries in the United States have also reduced production. For example, Exxon’s largest facility in the United States, located in Baytown, Texas, has shut down its gasoline making unit. In the European region, a number of refineries operating in German and Britain have also scaled back production. ExxonMobil’s French subsidiary also announced to acclimatize output at its two refineries in the country due to falling demand.

Refineries that are running & scaling down/may adjust their production rates:

  • ExxonMobil’s Gravenchon and Fos Refinery (France)
  • Miro refinery (Germany)
  • MOL Group’s 3 refineries (Hungary, Slovakia, Croatia)
  • Bazan group’s Haifa refinery (Israel)
  • SAPREF – Shell and BP South African Petroleum Refineries (Pty) Ltd (South Africa)
  • India’s Bharat Petroleum Corp Ltd: Kochi refinery and Mumbai refinery (India)
  • HPCL Mumbai refinery (India)
  • Indian Oil Corporation’s 9 refineries (India)
  • Bharat Oman Refineries Limited’s Bina refinery (India)
  • Mangalore Refinery and Petrochemicals Ltd. (India)
  • Pakistan Refinery Ltd (Pakistan)
  • SK Energy at Ulsan (South Korea)
  • Hyundai Oilbank (South Korea)
  • Refining NZ at Marsden Point (New Zealand)
  • Thai Oil at Sriracha refinery (Thailand)
  • PetroChina’s refineries (China)

Additionally, as per industry sources, due to the pandemic, worldwide demand for fuel is set to drop by around 15% to 20% in the Q2 2020. Such a downfall in demand will be an extraordinary shock for the worldwide refining system. Refiners have already started to observe financial losses as demand from the domestic market has dried up. A Singaporean refinery is expecting a loss of $2 per barrel of crude it processes, together with losses in gasoline production of more than $6 per barrel. For the year ending March, JXTG, one of Japan’s top refiner, expects a record net loss of 300 billion yen ($2.7 billion). Thus, several refineries have shut down their operations partially or completely.

Refineries that may/are offline/shut/planning to postpone its operations:

  • Grandpuits and Feyzin (France)
  • API refinery in Falconara (Italy)
  • Gunvor’s Rotterdam site (Netherlands)
  • Sitra (Bahrain)
  • Kuwait National Petroleum Company: Mina Al-Ahmadi refinery’s atmospheric residue desulfurization unit (Kuwait)
  • Ndjamena refinery in Djarmaya (Chad)
  • Engen refinery (South Africa)
  • Sasol’s Natref refinery (South Africa)
  • Chennai Petroleum Corporation Ltd: shut 2 of the 3 crude distillation units at its Manali refinery (India)
  • Caltex Australia’s Lytton Refinery (Australia)
  • PetroChina’s export refinery Guangxi Petrochemical (China)

Further, OPEC and its allies took unexpected measures by agreeing to cut production by around 10 million barrels/day, which accounts for about 10% of global oil supply. Starting on May 1, the 9.7 million barrels/day cut will begin, and it may remain the same till the end of June. Then by July, the scaling down will reach around 7.7 million barrels/day till the end of 2020. Further, from January of 2021, the cut will be as low as to 5.8 million barrels/day till April 2022. Then for further revision/action, the 23-nation group is expected to meet again on June 10. This move is expected to have a significant impact in the second half of the year and is expected to help lift prices to the mid-$40s by year-end.

Inkwood research analyses that Oil & Gas industry will be adversely affected as oil prices stay lower than expected, and the aftermath of the oil crash could linger till the year 2021. In fact, it is anticipated that there will be much broader economic implications on the oil industry. The repercussions will not be limited to oil’s demand, oil producers & drilling wells, but will affect everything that goes downstream, refineries, pipelines, oil field services, petrochemicals, among others. Hence, the road ahead for the oil industries predicts longsuffering and rough.

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