It has been over 1.5 months of lockdown for most of the business ecosystem around the world as the necessary precaution to stop the transmission of the COVID-19 pandemic. The oil industry especially has been taking severe blows back to back. All the major crude oil futures have suffered major dropdown in prices per barrel that came down to $0.15. Now that the lockdown is still on the run, the industry is facing negative pricing and is on the verge of shut down.
The Coronavirus shockwave has devastated the global oil industry with very unfortunate turn of events. First, it cut down the global supply chain of oil and consequently the demand as factories got shut down and drivers remained home to prevent the spread of the disease. The storage started filling up and oil futures opted to cargo ships to secure storage for their crude in the hope of better pricing.
But now, being the last resort, shipping prices have taken a gradual surge which has brought down further capital problems for the industry.
“We are moving into the end-game,” Torbjorn Tornqvist, head of commodity trading giant Gunvor Group Ltd., expressed to the media. “Early-to-mid May could be the peak. We are weeks, not months, away from it”, he added.
There were close to 650 oil rigs in operation all around the US before the pandemic hit the world economy. Over 40 percent of them have been shut down thereby putting a halt to the oil production with close to only 378 in operation now. This has been one of the major damages done because of the lockdown as the number of functional oil rigs hit the lowest in the last four years.
Ben Luckock, co-head of oil trading at the commodity merchant Trafigura Group, said, “Monday really focused people’s minds that production needs to slow down.” “It’s the smack in the face the market needed to realize this is serious.”
More and more oil refineries are getting shut in the US and also across the world rapidly. According to Steve Sawyer, director of refining at Facts Global Energy, almost 25 percent of the global oil refineries could come to a halt by the end of May, 2020. He said, “No one is going to be able to dodge the bullet.”