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Sector Report

Q1 2020: COVID-19 steepens oil's slippery slope

  • Multi Asset
  • Utilities
  • Global

As one of the most exposed industries to COVID-19, the pandemic is affecting oil in myriad ways — from pricing to shipping practices. Third Bridge Forum has spoken to a range of specialists to understand the ensuing supply and demand shocks, maritime implications and other dynamics.

It has been a rocky and unprecedented few months for the oil industry so far in 2020, with the Saudi Arabia-Russia price war squeezing prices and the restrictions imposed to fight COVID-19 driving down demand to levels not seen before. The price of West Texas Intermediate (WTI), the benchmark for US oil, fell to below zero for the first time ever on 21 April. With fleets of aeroplanes grounded, fewer cars on the roads and other forms of transport operating at a significantly reduced capacity, supply is outpacing demand. An expert interviewed by Third Bridge Forum predicted there will be an excess supply of eight million barrels of oil a day in Q2 2020, or three million barrels a day in 2020. 

“Because the demand is dropping so dramatically, rather than considering stockpiling fuel or releasing strategic reserves at this point, what’s happening is that countries’ reserves are actually increasing naturally,” another specialist said. “The issue right now is quite counter-intuitive, what’s actually happening is that the oil storage capacity of a lot of countries is reaching the point where they won’t be able to store oil for much longer.” Indeed some countries, such as Saudi Arabia, are storing oil at sea to the tune of around USD 200,000 a day.

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