The whirlwind of events that has transpired in the past couple of months — namely the coronavirus pandemic and the collapse of the OPEC+ coalition — has not only shaken up the energy markets, but quite literally sent it reeling in the opposite direction than where it was headed just a few months ago. The oil price decline has reverberated through the energy complex, and key indicators that drive industry decisions are veering far off from their recent course, and in many cases, also from historical norms. The world is continuing to change at a rapid pace as the industry navigates the uncertainty. Just yesterday, in an emergency meeting, OPEC announced it had reached a 23-nation agreement to cut a combined 9.7 MMb/d of crude oil production starting May 1, 2020. Today, we highlight some of the biggest moves happening in prices and price relationships in recent days and weeks as the realities of crude oil demand constraints, supply glut and low prices set in.
The double-whammy of the coronavirus pandemic and Saudi/Russia price war have ripped to shreds many, if not all, the previous working assumptions the industry had about the oil and gas markets just a couple months ago. The resulting collapse in oil prices has sent tremors across the energy complex in the form of capital expenditure cuts, infrastructure project cancellations, a collapse in gasoline prices, refinery run cuts — and now also brimming crude storage. In We Ain’t Seen Nothin’ Yet, we laid out the before-and-after dichotomy that’s emerged since the OPEC+ failure on March 6, our demarcation point for the abrupt shift in market realities. In the crude market, for instance, production has gone from a growth trajectory long term, to expectations of volumes stalling and eventually declining; transportation capacity that was once in short supply, has in some cases become redundant; refineries that were utilized at high rates before are now seeing declines; and storage capacity that was underutilized just a few months ago is now highly valuable for helping absorb surplus supply.
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