Will Oil Ever Recover from the Coronavirus?

The global COVID-19 pandemic has triggered an unprecedented collapse in oil prices, with analysts at Goldman Sachs warning the long-term effects could be severe. After the downturn, the American-owned multinational investment bank warns that ownership of high-quality assets among oil and gas majors could drop significantly. However, it's not all doom and gloom, with analysts claiming that while the price crash will significantly reduce capital expenditure, the pandemic could result in the emergence of a "leaner, stronger oil industry."

"Big Oils will consolidate the best assets in the industry and will shed the worst ... when the industry emerges from this downturn, there will be fewer companies of higher asset quality, but the capital constraints will remain," reads a Goldman Sachs report published in Reuters.

Airline and transport sectors quash demand

While the Chinese economy may be emerging from lockdown and reviving demand for oil, the investment bank warns global energy demand from the airline sector and transport sectors, which once accounted for around 16 million bpd, may never return to pre-coronavirus levels. For example, in the United States the EIA says jet fuel accounts for up to 8% of oil demand. In March, demand plummeted by 56% which represents an enormous drop in consumption. Similarly, petrol accounts for roughly 45% of US oil consumption. Demand dropped by 48% in March, suggesting new measures such as social distancing, working from home and travel restrictions could have a devastating impact on oil demand.

Goldman Sachs warns of eventual shortage

Goldman Sachs also warns the sudden drop in demand could result in an unexpected shortage over the next few years. In response to the pandemic, many companies have shut down refineries and wells, laid of workers, sold off assets and drastically reduced production. Even if demand does spike again, analysts warn it could be hard for some companies to get up and running again.

Uncertainty over how long it will take to get COVID-19 under control, combined with soaring case numbers in the United States, are also contributing to concerns over whether the oil industry will recover. There's hope for a vaccine though nothing is guaranteed, which means it could be months or even years before global economies can fully reopen.

To find out more about how the COVID-19 pandemic is impacting the global energy sector, don't miss 'The Only Certainty is Uncertainty for Corona-Stricken Oil Industry' with insight from Dr. Raj Shah, David Phillips and Ms. Shana Braff on behalf of Koehler Instrument Company.