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Oil Industry Insight

Can the oil industry survive in North America?

The spread of COVID-19 has has affected the global financial and commodity markets, as well as the US oil and gas industry.Can #oil&gas organisations remain competitive and emerge stronger in the wake of the COVID-19 pandemic? Unfortunately, the oil price collapse in North America is forcing companies into survival mode. Demand destruction plays a major role and with the breakdown of relations between Saudi Arabia and Russia earlier this month, led to an all-out rise in demand. Looking at the grand scale of the oil market balance globally, it's really a demand crash. Companies moved to capital preservation instead of trying to balance output growth and cash flow generation. This means that dividends are reduced and share buybacks are eliminated. There's barely any excess cash out there so they can't give it back to the shareholders.

The oil and gas industry has always had headwinds and tailwinds, risks and opportunities, uncertainties and foreseeable trends. For instance, the metrics of upstream activity in North America had already been trending downward, even before COVID-19. With that said, there has been slight upgrade n the economic outlook for the United States to a decrease of just under 5% for GDP. Growth is expected in 2021.

IHS Markit expects WTI prices over $50/bbl by the end of 2021.
Total North American capex is expected to rise significantly by the middle of the decade, from a low of USD 79.9 billion to USD 172.3 billion by 2025, an increase of nearly 116 per cent.Eventhough, this is subjective post-COVID-19 , it will take the best part of five years for expenditure to rebound to pre-COVID-19 levels. With this result, the gas prices is expected to go well above $3/MMBtu by the end of 2020, creating sufficient incentive for producers to fill the void.


Resources: Independent research, blog entries and more

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