How Long Will Oil's Coronavirus Recovery Take?

After hitting a 2020 high of US$63.27 in early January, oil prices slipped into negative territory for the first time in history in April. The dramatic shift was triggered by a global drop in demand caused by the COVID-19 pandemic, as well as a fierce production war between Russia and Saudi Arabia. On April 21, West Texas Intermediate (WTI), the usually reliable benchmark for US oil, was trading at below negative US$37 a barrel. While some experts are optimistic prices will recover by the end of the year, others warn it could take decades for the oil industry to rebound.

Ben van Beurden, CEO at Royal Dutch Shell predicts the pandemic will have a permanent impact on oil demand. “There will be changes, and therefore we have to be ready for that,” he said in an interview with Bloomberg Television. “That means that we probably have to re-establish what is going to be our strategy.”

Spiraling jet fuel consumption could hinder recovery

Citigroup analysts also adopted a bleak outlook, warning jet fuel consumption may not recover to pre-COVID-19 levels until the end of 2022 at the earliest. Boeing CEO Dave Calhoun is preparing for a similar scenario, saying it could take three years or more for international travel to resume and as a result, push up demand for jet fuel.

Some analysts warn that even a small drop in global demand of just 5% could have a severe impact on the health of the oil industry. In 2019, the International Energy Agency (IEA) estimated the world consumed around 100 million barrels per day. If this dropped by 5 million barrels, the equivalent of 5%, the industry could be hit by widespread structural overcapacity. Not only would there be too many wells, there would also be an oversupply of refineries, ships and pipeline space. As a result, oil prices could slip dramatically.

COVID-19 could accelerate peak oil demand

There’s also speculation the COVID-19 pandemic has pushed forward the expected date for peak oil demand. Some analysts predict a significant drop in aviation traffic could fast track the arrival of peak demand. Others warn it has already occurred. “I don’t think we know how this is going to play out. I certainly don't know,” he said. “Could it be peak oil? Possibly. Possibly. I would not write that off,” says BP CEO Bernard Looney.

The COVID-19 pandemic has sent shockwaves through the oil and gas industry and for many analysts, the road ahead is still unclear. With insight from experts at Koehler Instrument Company, ‘The Only Certainty is Uncertainty for Corona-Stricken Oil Industry’ explores what’s in store for the global energy industry.