Looks like the barrel is more important than it's contents

LOOKS LIKE THE BARREL IS MORE IMPORTANT THAN ITS COntents

Not in my wildest dreams did I imagine a slice of pizza would cost more than a barrel given the situation that unfolded in the last 24 hours.

So, how did we end up with negative oil prices today? Clearly, last week’s historic OPEC+ agreement was not enough to salvage prices from hitting rock bottom.

Storage capacity is filling up fast offshore and in-land. Currently, there's more crude oil than anyone can use. Let alone how we're going to use it, but also, where are we going to store it until lockdowns are eased?

Earlier last week, during the OPEC+ meeting, which includes Russia, it was agreed to cut production in May and June by 9.7 million barrels a day to help prop up prices. The cuts will then be eased gradually until April 2022. If only had they reached that agreement much earlier and not lingered in murky waters this long - maybe, just maybe – we could have been in a better situation.

We may have to wait and watch how the OPEC+ agreement takes effect and impacts the market next month. If it doesn’t help, oil producers will have to re-convene and cut production output by a greater scale than what they called 'historic' a few days ago.

To sum up, oil producers need to put their heads together and open the doors to innovative approaches in the race against time. We need to focus on survival rather than competing in choppy waters. That being said, producers would still need a helping hand from worldwide restrictions as they ease, at least that will help get rid of some of the excess storage and supply. Elsewhere, stock market traders will have their eyes glued to see if we're going to sink further or bounce back in three to four months when the rate of infections decrease.

20 April 2020 will always be remembered as a dark day for the oil industry, whether we saw it coming and didn't act fast enough or just didn't expect the lockdown to last this long, one thing is for sure - a resolution has to be made.

What would that mean? Do we stop pumping all together until the situation improves? If we're more cautious than optimistic maybe there's light at the end of the tunnel.

Here at the Gulf Downstream Association, we facilitate discussions between oil producers, downstream companies, government and education bodies by advocating regulations and collaborating in times likes these.

Let's hope to ride this wave, remaining cautious and hope that OPEC leads the way and mitigates this situation sensibly, in what seems to be a life-altering moment in history.

Pamela Nazareth I 21 April 2020

Back to Blog