Industry Updates

The Global Changing Dynamics of the Petroleum Arena Post - Covid

A COVID hit world brought a transforming oil market to its knees. Subduing demand and oversupply of oil sent prices to a 20-year low. Amidst such uncertainty and pressure, strong leadership and concerted action was the need of the hour.

OPEC and non-OPEC countries in the DoC had to take bold measures, enable strong communication channels amongst stakeholders, be adept at adaptability, and work round the clock in cooperation with other nations to bring the industry out of this quagmire.
On April 12, 2020 a crucial meeting of OPEC and non-OPEC countries in the DoC met and undertook the boldest action to bring the industry out of this quagmire. Unwavering international support allowed DoC producers to agree to the largest and longest production adjustments in history.

OPEC’s solid relations at the multilateral level and with global energy stakeholders was invaluable to bring stability to the industry, recover trust of investors, and maintain a steady flow of energy to the global economy. Furthermore, constant meetings helped support strategic decision-making. Instant access to relevant and accurate data also aided decision making in a rapidly changing environment.

Bringing back the industry to its old track requires tireless efforts, a lot of hard work, and multiple compromises from all stakeholders. Only through persistent efforts like these can the industry get back to its towering stature yet again.

Global Oil Market Report as of June 2021

The IEA Oil Market Report (OMR) is as follows. After a consecutive decline, oil demand rose by an estimated 3.2 mb/d to 96.8 mb/d in June – owing to global economic growth and ease of stringent restrictions as Covid was brought under control.

Similarly, global refining production recorded a growth of 1.6mb/d in June. However, industry stocks fell by a combined 21mb as per data for US, Europe, and Japan. Crude oil short-term floating storage declined by 23.7mb to 83.3 mb in June, whereas prices rose owing to tighter markets and declining oil stocks.
After initially surging to multi-year highs in early July, benchmark crude oil prices have since eased. However, the volatility in the prices remains an issue. As per reports oil markets are bound to remain volatile unless there is a clear-cut OPEC+ production policy. As a result, there is a high likelihood of a market share battle and inflation, possibly damaging a fragile economic recovery.

Unless an agreement is made by OPEC+, production quotas will remain at July’s level. Oil markets will tighten, owing to a rebound in demand. Reports suggest, 3Q21 could see the largest crude oil stock draw in a decade, accelerating the energy transition to an electric transport sector while simultaneously denting economic recovery.

In short, a well-thought out and coordinated approach is must to end the impasse and bring the oil sector back on track.

OCAC - Pakistan Oil Report 2019 – 2020

Covid-19 has had an unprecedented impact on the economy, especially the oil and gas sector. Pakistan’s oil consumption witnessed a decline of 12% with the total consumption being around 17.6 million tons. Majority of the consumption was reported by the transport and power sector, of about 80% and 8.8% respectively. However, the analysts are hopeful that the demand will bounce back in the fiscal 2020-2021.

“We expect petroleum demand to increase due to gradual normalization of economic activity following the lockdown. Demand will also find support from better farm economics, lower interest rates and the 2.1% real GDP growth expected for the 2020-21 financial year,” said Muhammad Mohsin Ahsan, Managing Director of Optimus Capital Management.

But despite the sharp fall in domestic oil consumption in a year that witnessed negative economic growth for the first time in 68 years, the country’s oil product imports posted positive growth, while imports of crude oil slowed sharply in the same period.

In FY 2019 – 20 Oil imports were recorded at 14.9 million tons, as compared to 17.97 million tons in 2018-19, exhibiting a decline of about 17%. If we observe the trend over the last 5 years, we see that the petroleum products and the crude oil have faced an all-time low import of about 8,100,261 and 6,773,783 accordingly. Furthermore, the exports too have drastically curtailed from 1,505,477 in 2014-15 to 619,590 in 2019-20.

During the current crisis, Pakistan has tried to balance the fiscal needs with the need to provide relief to people. With regard to petroleum, despite reducing prices by PKR 15 per litre, the government expects to gain an additional PKR 60 billion in the next fiscal (in accordance with the IMF report).