COVID-19 and beyond: Oil market update

 

BNCC, together with NBCC Rio, launched its first webinar with a successful presentation about Brazilian Exploration and Production Market Update by Rystad Energy. The virtual event had an audience with more than 60 members of both chambers.

Aage Thoen, chair of BNCC, opened the webinar and welcomed the audience. He highlighted the importance of this topic to understand possible scenarios for the future. The collapse in oil prices has sent shockwaves and uncertainty all over the world. The chambers of commerce are delighted to create an arena for discussing this topic with actors of the Brazil-Norway business community.Rystad Energy’s VP Latin America, Schreiner Parker, started the presentation giving an overview of the company and talking about Brazil’s political situation during these times. Rystad Energy is an independent energy consulting services, with headquarters in Oslo, offering global databases, strategy advisory, and research products for the energy sector. 

Parker explained that with the COVID-19 crisis intensifying globally, Brazil is emerging as potentially next big hot spot for the coronavirus. President Jair Bolsonaro’s strategy in preventing an economic meltdown also motivated a political crisis in the country. The president has fired his health minister over the coronavirus strategy. Then, one of the most popular and influential figures in the government, minister of justice Sergio Moro, resigns setting up a potential political conflict just as Brazil struggles to contain the pandemic. The political situation is very often connected with energy, explained Parker. Bolsonaro’s impeachment is a subject that is increasingly discussed in Brazil lately, and that would result in an even less optimistic scenario to the energy industry in the country.

Following, Aditya Ravi, oil analyst and VP Upstream Research at Rystad, presented COVID-19 and beyond: E&P market update, dividing it into five topics: 
Global demand structure and COVID-19 impact. 
Ravi explained that global oil demand is reaching a low point in April 2020. The cancelation of flights in the world, summed to a road traffic reduction reflected directly in demand. About 4 billion barrels will be removed from the global demand during this year. The majority of this decline comes from areas outside the primary demand of East Asia, Europe and North America. ​
Production cuts: the story so far
Despite OPEC+ and the most prominent producers agreed to make record cuts to their output, it did not prevent supplies from overwhelming the world’s oil storage facilities, and stock levels are increasing. This makes the situation even heavier, explained Ravi.
Global storage capacity is not enough to the oil that has been produced and is stressed, at risk to be full as soon as early May. Therefore, oil prices would be unlikely to return to pre-coronavirus levels this year, despite production cuts, because oil supplies have already created an oversupply in the market.
The OPEC+ alliance agreed to drop daily production by 9.7 million bpd over the next two months to stop the price war between Saudi Arabia and Russia. But with demand down by about 25 million barrels per day, the benefits of this deal are likely to be seen only later this year, concluded Ravi. 
Oil price influence on E&P cash flow, investments
E&P investments expect to fall close to 25% this year. Multibillion projects over the globe are postponed as the major companies squeeze capital budgets. According to what was said by the specialist, the long oil cycle again starts to dominate, most likely from H2 2020.
Medium-term impact and oil price forecast
Price shock impacts long term outlook, but if demand growth stays healthy and OPEC+ maintains discipline over production level, it is possible that market fundamentals will result positive, explained the specialist. Taking the turn to the Brazilian side, production will be down. The (major) state-owned Petrobras has announced plans to decrease oil production in an attempt to reinforce its flexibility in light of demand reduction. Rystad energy team was then available to a vibrant Q&A session. Many rich questions about the Brazilian reality were discussed. If you would like to discuss any of the issues raised in this webinar, please get in touch with Schreiner Parker (schreiner.parker@rystadenergy.com). The presentation is avaiable hereAlex Imperial, chair of NBCC, made the closing remarks. “We are living a massive challenge, and it calls for global preparation. The pandemic will leave its legacy. It may be time to bring out the reflection about the possibility of living with less oil and gas consumption. The future is very unpredictable, so such an analysis is critical to prepare for the future, concluded the chairman of our sister chamber in Rio de Janeiro. 
 

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