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As demand for crude oil drops, oil investment is drying up



Thirty-five percent: According to the International Energy Agency, this is the extent to which oil and gas companies may cut spending this year in response to the impact of the coronavirus pandemic on demand. This is just a decline in upstream oil and gas spending. According to data from the International Energy Agency (IEA), this is only part of the trend of investment cuts in the energy industry. Update A summary of the World Energy Investment Report, which was released at the end of spring. At the time, some people thought we had seen the most serious epidemic. They are obviously wrong.

Of course, the demand for oil has improved in some parts of the world, especially in Asia, where Asian governments have been more successful in containing the spread of the coronavirus than those in Europe, North and South America.However, even in China (the driving force behind the rebound in world oil demand), the rebound is still Slow down under. After all, even if its domestic demand may be improving, if regional and global demand stagnates, this will also have a negative impact on China.

According to the International Energy Agency, the impact of this epidemic on investment in the oil industry will continue to manifest in the next few years. This is not surprising: the agency pointed out that this year, US shale oil companies’ investment has decreased by 45%, while financing costs have soared by 50%.The number of active drilling rigs in the United States may be rise, Implying that it has begun to recover, but as of last week, the total number of rigs for the year has fallen by 564, so recovery will take some time.

Related: Washington State Approves Alaska’s ConocoPhillips Project At the same time, the US Energy Information Administration’s fuel inventory update sent mixed signals: for example, last week, shrink In terms of distillate fuel inventory, this should be good news, indicating that demand for distillate fuel is improving. The problem is that this improvement is likely to be temporary, not a trend. Air travel is still severely restricted, and there is little chance of changing the status quo.

Uncertainty: This is not only a keyword for the oil industry, but also the severity of all other keywords affected by the pandemic, so that it forces a change in the business model. Large European oil giants are striving to develop renewable energy and plan to significantly reduce the contribution of their core business to overall revenue. American professionals insist on using oil, and they probably have good reasons to do so.

The government and activists have been talking about achieving a green recovery from the pandemic crisis. But this epidemic is still raging, not only has not abated, but is gathering strength. This will mean that stimulus measures require more funding. In turn, this will mean that less money can be spent on renewable energy, because although the cost of solar and wind energy has fallen, the government’s financial and regulatory support is still critical to its increased deployment.

Related: Hedge funds promote bullish oil trading

The future is still full of uncertainty, and the uncertainty extends to the possibility of a rebound in oil investment. Some people say, such as BP, we have exceeded the peak of oil demand, so this means that global investment in oil production growth will be reduced. Other countries, such as OPEC oil-producing countries, hope that things will return to normal sooner or later, and the world’s demand for more oil will continue to grow for at least a few years. However, even OPEC is preparing for the worst.

In response to the latest trend of Covid-19 infection, the expanded cartel OPEC+ is considering another relaxation of its oil production reduction plan from January to April 2021. However, one thing seems relatively clear. The longer the surge of new infections lasts, the longer it will take for the industry to resume its path to recovery and growth.

By Irina Slav for Oilprice.com

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