The unprecedented oil demand plunge in the COVID-19 pandemic is poised to change the oil sector forever, as fewer companies holding high-quality assets emerge after the downturn, Goldman Sachs said on Monday.
Despite another round of 'leaner and meaner' industry consolidation after the one from the previous price downturn in 2015-2016, the firms that make it through this price crash will still see capital expenditure constrained, the Wall Street bank warned.
"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," Goldman Sachs analysts wrote in a note on Monday, as carried by Reuters.
According to the investment bank, the Saudi-Russian oil price war has been rendered irrelevant in the face of enormous demand destruction as major economies remain in lockdown, and demand for gasoline and jet fuel continues to tumble.
"The oil price war is made irrelevant by the large decline in demand and has made a coordinated supply response impossible to achieve in time," Goldman Sachs said.
The bank said last week that global oil demand could plummet by 18.7 million bpd in April, which could deepen an expected demand plunge of 10.5 million bpd for March while the coronavirus pandemic continues to claim thousands of lives and keep major economies in lockdown.
This week, Goldman sees the world's oil consumption down by 26 million bpd, or down 25 percent compared to the typical global demand, as lockdowns and social-distancing and travel advisories now affect 92 percent of the world's gross domestic product (GDP), Bloomberg quoted Goldman Sachs as saying.
According to the investment bank, global oil demand from the airline sector and commuters may never return to the pre-coronavirus demand levels of around 16 million bpd.
But the current drop in demand, refinery run cuts, and well-head shut-ins could result in an oil shortage in the next few years, Goldman Sachs said.
By Tsvetana Paraskova for Oilprice.com
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Comments
Once the coronavirus outbreak is controlled, the global economy particularly China’s will behave like somebody who has been starved of food while in quarantine. Once allowed to eat, his appetite will be rapacious and that will exactly be the same with the global oil demand which will probably double or perhaps triple oil imports to compensate for lost demand.
The world will be surprised by the speed by which the global economy will recover from this ordeal. Still, there will be so many lessons to be learnt on how to prepare the economies of the world to deal with sudden, unforeseen and atrocious events like the coronavirus. It is possible that the global economy may have to rewrite the rules by which it operates including having another look at globalization.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London