Coronavirus pandemic: Fracking industry braces for layoffs as global oil demand falls by 90K barrels a day
As the number of novel coronavirus (COVID-19) confirmed cases continues to rise — with the number being at least 180,000 on March 17 — industries and economies around the world are feeling the brunt of the pandemic. While the airline industry is expected to take a big hit, experts say the oil and gas industry will also feel the pandemic effect.
Last week, oil price slid to $30 a barrel (UK Brent). The price usually ranges between $50 and $70. However, this was mostly fueled by the oil price war between Russia and the Organization of the Petroleum Exporting Countries (OPEC) as Saudi Arabia slashed its crude oil selling price in order to flood the market.
The coronavirus pandemic is expected to have an adverse effect on the industry in the long term. The International Energy Agency (IEA) now sees global oil demand at 99.9M barrels a day in 2020, which is around 90,000 barrels lesser than it was per day in 2019. This is a sharp downgrade from the IEA's forecast in February, which predicted global oil demand would grow by 825,000 barrels a day in 2020.
Oil companies in the United States and Canada are especially susceptible to oil prices lower than $30 per barrel as many of them cannot make profits. More companies have announced that they plan to cut spending for the rest of the year. This could potentially lead to companies declaring bankruptcies and a large number of job losses. According to Alberta Premier Jason Kenney, the oil and gas sector is likely to see layoffs over the next few weeks.
The fall in oil price is set to severely impact the United States' fracking industry. Just like in the 2015 oil price cash, smaller companies are not expected to survive the fall in prices, leading to layoffs. Between 2012 and 2017—a period when oil prices were much higher — the 30 biggest shale frackers lost a combined $50B.
The IEA developed two scenarios to account for the uncertainty faced by the energy markets. In one, the agency takes into consideration that global measures will fail to contain the virus — leading to a fall in global demand by 730,000 barrels a day in 2020. In the other scenario, the agency looks at the case that the virus is contained quickly and forecasts that global demand will grow by 480,000 barrels a day.
However, with more countries instituting travel bans and governments encouraging people to self-quarantine, global fuel demand is set to take a hit. Rystaad Energy forecasts a decline of 600,000 barrels per day, year-on-year. The firm expects that global demand for road fuels will stay largely flat due to reduced road traffic in the first half of 2020.
Rystaad also expects the jet fuel sector to be hit the hardest. According to the firm, global air traffic will fall by approximately 16% this year compared to 2019. Jet fuel demand is expected to fall by 11% year-on-year, equating to 780,000 barrels per day. Last year’s demand for jet fuel was seen at about 7.2M barrels per day.