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With the impact of COVID-19 pandemic spreading quickly across
the world, all eyes are now on the US and how major cities have
been reacting, with the large companies already closing offices and
operations. Additional measures to isolate more people in an effort
to slow the spread and protect the vulnerable population groups,
could translate in much harder times for the oil industry over
coming weeks or months. The potential effects for US oil in case of
a full quarantine is the topic we'll discuss below.
So far, we've already observed US border closures in combination
with travel restrictions, which were then followed by shop and
school shutdowns hitting the US oil industry rather hard. The sharp
decline in the West Texas Intermediate (WTI), the primary US oil
benchmark, by around USD 30 per barrel in just a month, leaves no
space for US oil producers to achieve any profits. Current oil
prices only marginally surpass breakeven for most producers in the
country.
In the meantime, Saudi Arabia and Russia proceed with expanding
their production, planning to flood the world with much more crude
oil from early April, even if global demand for oil is under severe
pressure. With travel bans and entire countries shutting down
everything starts becoming the new normal.
The US has been the largest consumer of crude oil in the world,
with a market share estimated at around 20% at marginally below 20
million b/d. The transportation sector is responsible for almost
half of these volumes consumed in the US.
Crude Oil flows to the US has remained below three million b/d
in 2020 Q1, as the country has turned into a net exporter. Saudi
Arabia and Iraq, together with oil producers across the Americas,
including Mexico, Colombia, Canada, Ecuador and Brazil, remain the
major suppliers of crude oil to the US.
Seaborne exports from the US have been strengthening in 2020,
with South Korea continuing to absorb more than 350,000 b/d, while
India surpassed 250,000 b/d once again last month. However, barrels
to be added by Saudi Arabia and other producers across the Middle
East in combination with India imposing a general lockdown could
add pressure against US flows to the South Asian country. China
hasn't managed to increase imports from the US so far, even after
the "Phase One", but the future by late 2020 could turn much more
promising.
Most recently, there has been some recovery in oil prices in
hope that Washington will finalize a USD two trillion coronavirus
aid package to support the country's economy which could support
oil demand. Volatility in WTI prices is set to remain high.
However, the overall crude demand outlook looks rather
disappointing as long as travel restrictions remain in place to
prevent the coronavirus spread.
Moreover, the US Department of Energy announced its plans buy up
to 30 million barrels of crude oil for the Strategic Petroleum
Reserve by the end of June. This is according to President Donald
Trump's directive to fill the emergency stockpile to support
domestic crude producers.
This could affect future seaborne exports and imports. The
reserve in Texas and Louisiana has 77 million barrels of available
capacity. Volumes of both sweet and sour crude oil will be bought
primarily from small and midsize producers with less than 5,000
employees.
