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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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How COVID-19 Will Change Oil Markets Forever


Oil is cheap, demand is gone, and nothing will ever be the same. These are the facts in oil today that experts seem to agree on, although opinions may differ on what happens next.   

Whatever happens next, is largely undisputed: The oil industry—and those related to it, such as transport—has a long and winding road back to profitability.  

“This is not a cycle. There will be no return to normal,” wrote Peter Bryant, managing partner at business consultancy Clareo, recently. On a more positive note, Bryant continued, “This is a defining moment of ‘restructure’ that will completely reorder the supply chain and create new opportunities.” 

The opportunities will be for those with the cash, namely large oil companies and private equity firms. The rest will consolidate or go under, especially small independents in U.S. shale and Canada’s oil sands, says Richard Marshall, head of global oil and gas industry practice at enterprise business solutions provider Nakisa. 

“For larger companies, those with higher debt levels from recent M&A or other purchases are under more pressure to act quickly whether from shareholders or debt holders,” Marshall told Oilprice, highlighting the vulnerability of a whole industry. As E&Ps go under and the vertically integrated players slash spending, oilfield service providers will once again be exposed to the worst of the crisis. 

Refiners will suffer, too, as the whole oil industry fails its stress test, as Lux Research’s director of research, Arij van Berkel noted in comments to Oilprice. 

“Even though the oil industry theoretically has a diversified product portfolio, the current situation shows that its ability to switch between markets is extremely limited. The industry failed the stress test,” van Berkel said. “The industry should focus on diversifying the feedstock for downstream. That way, it can more easily absorb supercheap oil and be more robust against price hikes in the other direction as well.” 

How could the industry have diversified? Into refinery feedstocks, according to van Berkel. Vegetable oil and pyrolysis oil could have been used as feedstock in times of higher oil prices, so when oil prices drop, refineries could switch to the cheaper petroleum and absorb more of the surplus supply. None of that happened yet, but it could. 

Premium: The Oil Sector That Will Suffer The Most

The new normal, with oil prices at $20-30 a barrel for the observable future, would include another innovation drive, Clareo’s Bryant says. Just like in the last crisis when oil companies rushed to boost their production efficiencies, even if a lot of this boost came from lower oilfield service prices, they will rush again. This time, however, they will likely make all their processes more efficient to lower operating costs.  

This new normal would also be bad news for shareholders. Companies will need to cut their dividends as there will be a lot less room to borrow or sell assets to maintain current dividend payment levels, at least for a while. The new normal will also put an end to the industry cycles. 

“We are not in a cycle where we should expect a recovery but instead we find ourselves in a restructure that will be the new normal; there will be no more typical cycles but periods of restructures,” Bryant said. 

The reverberations of such seismic change would extend to other industries, of course. The most obvious one is transport, specifically air transport. The U.S. federal government has poured billions in cash injections to airlines, but it has not been enough: this is money to prevent large-scale layoffs, not a long-term solution. Bankruptcies are looming in air travel, too. 

Andrew Toumazi, CEO of BLOC-X, the electronic trading platform, told Oilprice, “We can already get a sense of what is happening with commercial traffic falling 70% and jet fuel making up approximately 8% of total global oil demand we have shaved 5.5% off global oil demand. As we see the first bankruptcy with Virgin Australia failing and a significant number of other airlines in precarious positions financially such as Norwegian, there is a credible possibility in the short run of a permanent loss of flight traffic.” 

Permanent loss of anything is the last thing anyone wants to hear, but we may well be on course to a permanent decline in oil demand. The size of this decline will undoubtedly be smaller than the size of the current decline, caused by national lockdowns and travel bans. But it will be a loss of demand, which would be a departure from what we have known as normal for decades: that oil demand continuously increases, simply because the world’s population increases and it needs energy.  

Now we have lower demand that will stay lower for quite a while. In order for demand to recover to pre-crisis levels, Bryant said, industrial and transportation activity need to snap back to previous levels, and this is unlikely to happen within a year. 


Indeed, U.S. officials are already preparing for flu season in the fall, bracing up for a fight against two enemies: the flu and the coronavirus. This, along with comments made by numerous senior medical professionals, suggests the Covid-19 crisis is far from over, even if lockdowns become to get eased in more than a handful of countries. It will be a long fight, both for governments and the oil industry, along with all industries depending on and related to it.

The silver lining? In the U.S., the industry will be forced to do all the things it didn’t do in the last two downturns, Nakisa’s Marshall says. Out of necessity, U.S. oil players will become truly leaner and meaner, and, as a result, more resilient. Resilience, it seems, will be the name of the game in the new normal.

By Irina Slav for Oilprice.com 

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  • Mamdouh Salameh on April 28 2020 said:
    Despite a lot of pontification from energy experts, global oil markets will resume their business as usual once the global lockdown starts to ease. Once the global economy is back in business, the coronavirus will be history, albeit a very painful and sad history for some.

    One thing the outbreak has proven irrevocably is how inseparable oil and the global economy are by demonstrating that destroying one automatically destroys the other and vice versa.

    Still, I will list a few facts of life for those pontificating on the future of oil and oil markets in the aftermath of the outbreak.

    Fact No 1: There will never be a post-oil era throughout the 21st century and probably far beyond. Oil will continue to reign supreme.

    Fact No 2: There will not be a peak oil demand throughout the 21st century and beyond.

    Fact No 3: An imminent global transition from oil and natural gas to renewables is an illusion.

    Fact No 4: Oil and natural gas will continue to be the fulcrum of the global economy and the core business of the global oil industry well into the future.

    Fact No 5: Without oil, there will be no global economy and no modern civilization as we know it.

    Fact No 6: Once people are out of lockdown and staring to enjoy modern life underpinned by oil, the coronavirus outbreak will be shunted to the back of their mind as a distant and painful memory they would rather do without. This is mankind's self-preservation.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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