How COVID-19 has continued to affect the Big Oil Industry
How COVID-19 has continued to affect the Big Oil Industry
Within the first quarter of 2020, cash flow from operations has dropped as oil prices continue to fall. At least $2.823 billion has dropped from Q4 of 2019 to Q1 of 2020 on just cash flow alone. The demand for oil has already dropped by 20%, and global investments in exploration and production are expected to fall in 2020 by $100 billion, according to Rystad Energy.
With Q1 & Q2 taking such a hit, only time will tell just how Q3 will go. Some experts predict possible bankruptcies, however, many companies are strategizing and working hard to make sure those scenarios don’t happen.
What Now?
Although oil prices today have dropped, there are very few buyers available to purchase it, which led to the agreement for some companies to cut operations and pause production. However, towards the end of Q2, production actually increased due to Saudi Arabia and Russia failing to agree to extend production cuts, which ended up flooding the market with oil supply. Because of the high supply, and low demand for oil, inventories must be used before new production can be done.
Big Oil Collapse + The Economy
Gas prices have also been directly reflected by the decrease in oil prices: just last month, the national average for a gallon of gas was $1.88, according to The American Automobile Association. Unfortunately, there is less traveling happening due to the stay at home orders. This includes any travel that is dependent on that crude oil, including cars, buses, trains, and planes. According to Desert News, airline travel alone has decreased by 96% which means that there is no need for jet fuel right now.
On the upside, freight movements in the U.S. have actually stayed fairly resilient, even though overall truck travel is down by 13%, according to INRIX. Travel might be down, but there is more spending money available for... online shopping! Amazon released the following statement on their FAQ page “As COVID-19 has spread, we have seen an increase in people shopping online.” But can online shopping save the economy?
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