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Alarming oil prices will spark serious conversations for producers worldwide

Posted by Warwick Business School at 30 March 2020, 16:27 CET |
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Professor David Elmes, who leads the Global Energy Research Network at Warwick Business School and has more than 20 years experience in the energy and management consulting industries, said:

"The fact that oil prices have sunk to a level not seen since 2002 will set alarm bells ringing. It's not just the price per barrel, it's the wider challenges facing the industry.

"The battle to supply, whatever the price, is happening in a climate of both short-term and long-term decline in the demand for oil.

"We are starting to see how the coronavirus is reducing oil demand, but some industry forecasts were acknowledging a flattening off in long-term demand last year, before the pandemic began.

"All companies in the sector will be looking at how they can cut costs, shift their activities to the lowest cost field they can, trim investment, and thinking hard about what dividend they can pay.

"There will also be more serious conversations taking place.

"State-owned oil and gas companies around the world will be having tense discussions with their governments about how long they can expect government sympathy for low prices. That will be made more difficult by governments needing to pump money into their economies to address the slowdown caused by coronavirus.

"The European-based large, international companies have started to say they will become less focused on oil and gas over time. There will be intense discussions on what can they do to move faster."

"The US shale industry will be calling for government support to avoid their debts dragging them under.  The accusation that this is a price war supported by foreign states will offer a tempting opportunity for protectionism when it's really a self-inflicted debt bubble caused by rapid growth in US production."

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