Pandemic will result in leaner, stronger oil trade however increase threat of shortages. PHOTO: REUTERS
WASHINGTON: The coronavirus pandemic and ensuing plunge in crude costs will end in a leaner, stronger oil trade however increase the chance of shortages additional down the road, Goldman Sachs analysts mentioned on Monday.
Crude costs suffered one other sharp fall on Monday because the pandemic worsened and the Saudi Arabia-Russia worth warfare confirmed no indicators of abating.
Refiners the world over, in the meantime, have been pressured to halt operations due to steep falls in demand which have despatched merchants and analysts scrambling to chop their forecasts.
“If pipelines get clogged up as refineries shut down, inventories cannot build, reducing the cushion and creating a very quick risk reversal towards oil shortages,” Goldman mentioned in a notice.
This may, in flip, trigger an oil scarcity, pushing costs above the Wall Avenue financial institution’s $55-a-barrel goal for 2021, it mentioned.
“This will likely be a game changer for the industry,” the financial institution mentioned. “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.”
Oil has been hit disproportionately by the “corona crisis”, sending landlocked crude costs into unfavourable territory, Goldman mentioned.
“Paradoxically, this will ultimately create an inflationary oil supply shock of historic proportions because so much oil production will be forced to be shut in,” it added.
“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.”
The financial institution additionally mentioned that demand from commuters and airways, which account for about 16 million barrels per day of world consumption, might by no means return to their earlier ranges.
The upstream sector might lose about 5 million bpd of provide capability, it added.
