Novak expects global investment in oil to drop by third
The world’s oil industry is among the most affected by the ongoing economic turmoil, as it is facing the biggest annual drop in energy investments on record. According to Russia’s Minister of Energy Alexander Novak, oil consumption may not recover to pre-crisis levels before the end of 2021, although a balance between supply and demand may be achieved in July already.
Global investment in oil is set to plunge by one-third this year due to the coronavirus and its effect on economies and oil demand, says OilPrice.com citing Russia’s Minister of Energy Alexander Novak. Global demand dropped by 25-28%, or by 28 million barrels bpd, at the peak of the pandemic in April. However, a market balance — or even a deficit — may be reached already this month thanks to the new OPEC+ production cut agreement, the minister considers.
Novak’s views on the market rebalancing and investments in the oil industry echo other assessments. The International Energy Agency (IEA) expects the COVID-19 pandemic to bring the biggest annual drop in energy investments on record. This year, investment in oil and gas is set to plunge by US$244,1 billion, or by nearly one-third, compared to 2019. The drop in investment is likely to lead to a tighter oil market than previously anticipated, believes the IEA. “The shale industry was already under pressure, and investor confidence and access to capital has now dried up: investment in shale is anticipated to fall by 50% in 2020,” said the agency in its World Energy Investment 2020 report in May.
Rystad Energy data provider also expects global spending on upstream oil projects to plunge by 29% year on year in 2020. Investments in shale are supposed to suffer the most and drop by 52,2% to US$67,3 billion. “As the impact will be more severe than in the previous downturn, companies are fiercely defending shareholder value and pivoting towards more conservative spending strategies in the near term. As the global upstream sector contends with low prices, falling demand and fluctuating exchange rates, every dollar cut will strike directly to the bone,” Rystad Energy’s upstream analyst Olga Savenkova commented last month.
The Joint Ministerial Monitoring Committee of OPEC+ will meet in mid-July to recommend the next level of cuts. According to Reuters’ OPEC+ sources, no discussions have yet taken place about extending the existing output cuts into August, which means they are most likely to be eased from 9,7 million bpd to 7,7 million bpd until December.
“We will see how the situation develops, what was the technical data and statistics in June. So, the technical committee under the aegis of OPEC will analyse compliance, the market situation and the forecast,” explained Novak adding that a partial resumption of the unprecedented cuts may start from 1 August.
On 2 July, the Russian Ministry of Energy revealed that the country’s oil output fell from 9,39 million bpd in May to 9,32 million bpd in June, which is near Russia’s target under its deal with OPEC+.