Oil Suppliers and the Pandemic
Since the worst impacts of the pandemic seem to be over, we can now look back on the past seven months of a global pandemic and examine the impacts on oil suppliers. Millions of people moving to working from home as well as travel restrictions across the globe led to a steep crash in demand. The International Energy Agency stated that global oil demand fell by 10.75 million barrels a day in the first half of 2020, with about 11% less demand than in the first half of 2019. The industry is predicted to finish off 2020 in a better position, but it is likely that demand will still be down. Oil suppliers across the globe have had to adapt their strategy in order to profit this year.
Saudi Aramco had just gone public with a record-breaking IPO in December 2019 and was celebrating a huge success when demand plummeted a few months later. Although Saudi Aramco was able to still turn a profit and donated PPE and respirators to the healthcare industry during the pandemic, profit nonetheless plunged 73% in Q2. Aramco also drastically reduced its capital budget, but CEO Amin Nasser determined that Aramco would still pay $75 billion in dividends. Competitors like BP and Royal Dutch Shell had cut dividends. Saudi Aramco has been closely competing with Apple for the spot of the world’s most valuable company. Despite Aramco’s struggles this year, it was able to once again gain the top spot when tech stocks dropped in September. Despite the volatility of the oil market, suppliers like this have proven remarkably resilient.
ExxonMobil tells a similar story. The past few years have seen declining values as the company has lost over 60% of its value in just seven years. This year has seen a $1 billion drop so far. ExxonMobil experienced its first quarterly loss in modern history in Q1, and recently lost its long-standing title as largest energy company in the US. Additionally, ExxonMobil cut its market cap in half in the last 6 months, but still promised to not cut dividends despite being deeply in debt. For Exxon Mobil, the pandemic seems to have just worsened the steep decline the company was already facing.
Finally, OPEC as a whole had been dealing with declining crude oil values for multiple years before Covid-19 hit. They had continuously cut output for years, then, in April of 2019, OPEC+ agreed to cut production by almost 10 million barrels a day. Although declining cases over the summer led to a hopeful outlook for the end of 2020, the surge of cases into September led OPEC to adjust their expected demand lower. Of course, since cutting production, OPEC has dealt with non-compliance from member nations like Iraq, although Saudi Arabia’s threats in August have mostly kept the cartel in line.
Overall, global oversupply is still a huge issue across organizations. Demand for oil is still low, and these suppliers will likely not see the end of the decline in 2020.
Edited by:
Matthew Takavarasha
Sources:
https://www.wsj.com/articles/opec-was-under-pressure-even-before-covid-19-11594674689
