The global energy demand is surging day by day with a noticeable demand from the transportation sector. These factors are fueling the growth of the global oil industry resulting in a steady growth rate in the upcoming years. Moreover, it is also expected that as the global economies continue to invest in petroleum-based products, the growth of the oil industry is expected to grow at a steady pace. But, as the recent outbreak of COVID-19 all across the globe has disturbed the symmetry of almost every industry vertical; it has equally wreaked havoc on the global oil industry. Coupled with this pandemic, the ongoing price war and trade war, have parallelly added to this turmoil. The rapid spread of the virus is causing a significant gap between supply and demand for crude oil in the global market. For an instance, the IEA estimates that global demand for oil would fall by 2.5 million bpd year-on-year in the first quarter of 2020. The COVID-19 outbreak is causing a crisis in major economies including the US, China, India, Italy, UK, Germany, Japan, South Korea, Iran, and many others.
Many of these countries have announced for a nationwide lockdown resulting in the cease of operations of major industry verticals. The government of the several nations have called on people to shelter-in-place at home, shut down local businesses, and prohibited social gatherings. Not only this, the governments have also sealed borders, suspended schools, and offices, and put a hold on all domestic and international flights, which tumbled the consumption of petroleum products across the globe. In addition, the resulting decline in the sanctioning of upcoming projects have also impacted the operations of oil units. In 2019, the total sanctioning of onshore and offshore exploration and production projects reached nearly $192 billion. At the beginning of 2020, when the COVID-19 outbreak was not even started, it was estimated that projects representing a total investment worth of $190 would be sanctioned in 2020. However, recent developments and scenarios have augmented-major revisions in that estimate.
As per the US Energy Information Administration (EIA), the Brent crude oil prices averaged $64 per barrel in 2019. EIA further forecasts that the Brent crude oil prices will average at around $43 per barrel in 2020. For 2020, it is expected that the average price of Brent crude oil will be $37 per barrel in the first half, whereas it will rise to $42 per barrel during the second half of the year. Moreover, in 2021, these prices are expected to hit a value of around $55 per barrel on average as declining oil inventories put upward pressure on prices. However, amid the outbreak of COVID-19 which has caused a severe negative impact on the oil industry, many of the industry experts are expecting the average price of Brent crude around $30 per barrel in 2020 as an increasingly likely scenario. As per the OilPrice.com, the Brent crude oil price as of 28th March 2020 was nearly $28 per barrel in the US. Following the average Brent crude oil price of $30 per barrel, Rystad Energy estimates that the total project sanctioning will be reduced to just $61 billion, of which $31 billion will be sanctioned to offshore projects and remaining $30 billion to onshore projects.
