Sharp fall in oil prices causes severe disruption across the oil industry
On 28 April, global benchmark Brent Crude was priced at $19 a barrel, down from $70 at the start of the year.
This price is the lowest in almost two decades and comes as a result of a significant decrease in demand due to the pandemic.
UK-based multinational company BP announced first-quarter net income of $800m. This is only a fraction of the 2019 first-quarter figure, which stood at $2.4bn.
The company’s CEO Bernard Looney said that the industry has been ‘hit by supply and demand shocks on a scale never seen before’ but will continue looking for solutions.
The crisis follows a price war between Saudi Arabia and Russia after Russia refused to support production cuts already agreed by other OPEC members.
Although damaging in the short term, the fall in prices may force companies to look to more environmentally friendly methods and diversify their business.
Faltering oil industry will bring global economic issues
Oil drilling in 2020 is expected to close to record low levels and reach only half the levels of 2019.
Countries that rely on oil exports will be the most affected by the price fall. For example, African countries Algeria, Libya and Nigeria all rely on prices of approximately $100 a barrel to prevent a budget deficit.
Furthermore, Saudi Arabia is likely to suffer having not fully recovered from the price drop in September 2014. The nation faces a potential funding shortage of over $125bn.
In the UK, 30,000 jobs are on the line, which is a fifth of the total number directly or indirectly employed by the industry.
Low oil prices mean low petrol costs and can reduce the cost of living, which boosts the economy. However, due to most people being restricted to their homes and other areas of economic concerns, these benefits are negligible.
The crisis could shape the future outlook of the industry
Experts in the UK have called for the crisis to prompt leading players to increase their efforts on focusing on a carbon-neutral strategy in their recovery plans.
Deirdre Michie form OGUK said for the UK ‘to maintain its supply of domestic energy, protect jobs and build the critical infrastructure, it needs to transition to a net-zero future”.
This sentiment has been echoed by environmental activists such as Ryan Morrison from Friends of the Earth Scotland. He argues that any attempt to return to ‘business as usual’ will lock in ‘another crisis further down the line without regard for workers and communities’.
With the effects of global warming becoming particularly prominent in recent times, companies must use this oil crisis to look to the long term and seek eco-friendly energy-producing methods.