Image credits: Joe DeSousa, Flickr
News Article

Oil Must Remain Vigilant Following Strong Performances

By Peter Appleby | Mon, 05/18/2020 - 17:14

The global and Mexican oil and gas industry enjoyed a strong performance last week as the world begins to come round after the powerful blow it received from COVID-19.  Restrictions on movement are still in place in most heavily-effected regions, but those countries who were first to see outbreaks are inching closer to the “new normal.” 

Across the board, oil prices rose last week. According to El Economista, the Mexican crude oil basket finished Friday up 13.02 percent at US$24.74 dollars per barrel, while WTI and Brent closed up 18.96 percent at US$29.43 dollar per barrel and 4.94 percent at US$32.50 respectively.

The strong performance of prices is being driven by those countries that are beginning to reopen their industries following several dormant months. China, often referred to as “the world’s factory,” is the major protagonist in this drive. Its huge production capabilities and population, now approaching 1.5 billion, is an energy magnet. As it starts to overcome the pandemic that began in the country, energy is needed once more. According to Bloomberg, China’s oil demand is close to pre-virus levels. Approaching 13MMb/d, China’s oil provision represents almost a quarter of the globe usual requirement of just over 100MMb/d.

All good news and a reason for oil and gas players to see light at the end of the tunnel. But the industry must be aware that it still has a long way to go.

Wood Mckenzie noted that that the world aviation industry, another major source of energy demand, is still operating at a level far below normal. On Wednesday of last week, there were 36,000 commercial flights around the world. This is just a third of the number of daily flights three months ago, says the consultancy. Past global events, like 9/11, had a long-term effect on the aviation industry, causing a drop in commercial flights that lasted for a minimum of five months and cost the industry US$10 billion over the next five years, says CNBC. Today, worries about contracting the virus while traveling and the economic destruction that COVID-19 has caused means aviation's recovery will likely to be a slow one. 

Mexico remains in Phase 3 of the pandemic but the government is moving forward with the reopening of the ‘Municipalities of Hope,’ the name given by the government to those municipalities with very low COVID-19 cases and the first to enter the “new normal”. Construction, automotive and mining industries are also set to be reopened soon. But the country still has six weeks of its 100Mb/d OPEC+ agreement cut to see out and thousands of PEMEX workers remain ashore after being evacuated from the company’s offshore platforms due to the virus.

Whether these workers will return soon is unknown but the company’s death toll is mounting. As Bloomberg reports, the death of 28 PEMEX employees and one contract worker is a higher rate than that of the country’s nursing workforce, despite PEMEX employing 30 percent fewer workers. Management has been criticized for its lax handling of the pandemic, having reacted to the threat of COVID-19 far later than other comparable oil companies, and the lack of clear protocols. But work will commence on the five discoveries the company made in 1Q20, which present resources of almost 200MMboe.

Another sign of the current condition of Mexico’s oil industry came last week with the news that Halliburton, the world’s largest oil service provider, will close its offices in Mexico City and in the oil hubs of Villahermosa and Paraiso. The company says that the closure will only last  May and June and was forced by COVID-19’s  wide-ranging impact.

The industry appears to be finding its feet. But it would be unwise to believe the last week’s strong performance is definite proof of health. Instead, companies must remain attentive to the push and pull of the market as the world slowly reconfigures its ways of working. Much is yet to come. 

The data used in this article was sourced from:  
El Economista, CNBC, Bloomberg
Photo by:   Joe DeSousa, Flickr
Peter Appleby Peter Appleby Journalist and Industry Analyst