*…says global E&P CAPEX cut to $450bn for 2020

By Michael Eboh

Secretary-General of the Organisation of Petroleum Exporting Countries, OPEC, Mohammad Barkindo, has said disclosed that the coronavirus, COVID-19, pandemic has plunged the global economy and the global oil market into one of the most severe crises in recent history.

In his statement to the International Monetary and Financial Committee, IMFC, meeting of ministers and governors, at the ongoing World Bank/IMF virtual meeting, Barkindo affirmed that the various measures introduced by countries across the world to contain the spread of the virus had created an immense shock in the crude oil market and global economy in extension.

He said: “At the beginning of 2020, there were signals that the economy would rebound from the slowdown in the second half of the previous year, with global economic activity, including global trade and industrial production, expected to pick up.

“However, instead of the expected pick-up in activity in 2020, the global economy and, consequently, the global oil market are experiencing one of the most severe crises in recent history, caused by the COVID-19 pandemic.

“Countries around the world have virtually shut down, imposing travel restrictions and mandating social-distancing measures in an effort to contain the pandemic. These measures have not only severely affected global economic growth, they have also caused a historic demand shock in the oil market, which has led to extreme volatility in oil prices.

“Concerns about this grave oil market imbalance, which could lead to a large build in global oil stocks in coming months, led to oil prices dropping significantly in late March to reach the lowest levels in nearly 18 years. Oil prices lost about two-thirds of their value over first quarter 2020.”

Giving a forecast for 2020, Barkindo disclosed that COVID-19, the ensuing global economic recession and oil demand destruction are forecast to impact world oil supply, noting that oil companies across the world had already announced reductions in their planned capital expenditure amid sharp declines in oil price levels.

According to him, global exploration and production (E&P) spending for 2020 is now estimated at $450 billion, the lowest level in 13 years, stating that before the COVID-19 pandemic, upstream investment was expected to remain flat year-on-year (y-o-y).

He said: “Following global economic growth of 2.9 percent in 2019, the world economy is forecast to face a severe recession in 2020, declining by 1.1 percent.

ALSO READ: COVID-19: OPEC puts Nigeria’s oil output at 1.78 m/bd in March 2020

“Despite slight signs of improvement at the beginning of the year, expectations for global economic growth were burdened by the carry-over of weak fourth quarter 2019 data in several key economies, which has been significantly worsened by the strong impact of the COVID-19 pandemic. Economic developments in times of COVID-19 are proving to be unique.

“Contrary to comparable economic shocks, the global economy is witnessing a combination of a supply and a demand shock, together with severe disruption in the financial markets.

“Moreover, the impact of COVID-19 is exacerbated by high global debt levels, the ongoing general slowdown in world trade, as well as challenges in manufacturing caused by slowing capital expenditure in some key economies and by the global deceleration of the automotive industry.

“The underlying key assumption for the 2020 GDP growth forecast is that the impact of COVID-19 related developments outside China will continue well into second quarter 2020. Therefore, most regions are forecast to see a slowdown through second quarter 2020, recovering only towards the second half of third quarter 2020.”

However, Barkindo expressed the commitment of OPEC to re-establishing healthy oil market fundamentals and restoring balance to the oil market in support of the global economy.

He said, “OPEC would like to take this opportunity to reaffirm its long-standing commitment to supporting oil market stability for the mutual benefit of consuming and producing nations, thus contributing significantly to the health of the global economy.

“The historic success of the Declaration of Cooperation has underscored the Organisation’s leadership in ensuring a stable and constructive environment in which future energy requirements can be met. Given the current global crisis brought on by the COVID-19 pandemic, the need for international coordination has become ever more apparent.

“OPEC reiterates its commitment to spearhead the joint efforts in re-establishing healthy oil market fundamentals and restoring balance to the oil market in support of the global economy.”

Vanguard