- The coronavirus pandemic is not sparing the black gold market, on the contrary. On Monday, the price of a barrel of WIT plunged into the negative on the May contracts, a new situation.
- The other oil markets are suffering the blow. The coronavirus pandemic and the associated containment measures led to a drop in demand of around 30%.
- It remains to be seen how oil will recover from this unprecedented crisis. Prices, currently very low, could allow it to restart all the more quickly during the recovery. Not necessarily good news, therefore, for the energy transition.
The collapse in the price of a barrel of WTI (West Texas Intermediate), a type of American oil listed in New York, marked the spirits on Monday. And for good reason, it plummeted in the negative, to reach -37 dollars (-35 euros) on certain specific contracts. Clearly, investors who wanted to get rid of their barrel of oil had no choice but to put their hands in the pocket to find a taker.
Unthinkable again a few weeks ago. The barrel of WTI had never fallen below 10 dollars, and it was still trading at 60 dollars at the start of the year. Meanwhile, the coronavirus has been there, causing a global collapse in demand for oil. It is not only the WTI that is affected, but the entire world oil market.
What to permanently affect the world oil industry? And is this only good news for the climate? Guy Maisonnier, economist at IFPEN (French Institute of Petroleum and New Energies), and Philippe Chalmin, professor of economic history at Paris-Dauphine University, respond to 20 Minutes .
Why shouldn't we overinterpret the importance of this historic plunge from Monday's WTI?
More than the collapse of global demand for oil in these times of containment, it is especially the expiration of futures contracts which explains the collapse of the price of a barrel of American oil on Monday. Like other raw materials, crude oil is a speculative product listed on a "futures" market. We agree on a price today for delivery at a later date. "These futures contracts are traded month by month," explains Guy Maisonnier. Many traders had their May contracts expiring on Tuesday, so they had to unwind their credits. Clearly: find a buyer able to physically take possession of the goods.
When the buyer is scarce, the alternative is to store this oil. However, in the United States, storage is limited and is already reaching high levels. "We are talking about 70% of the capacities used today," says Guy Maisonnier. The pressure is less strong for brent, produced in the North Sea, where there is still availability in terms of storage. »Besides, the barrel of brent, the main benchmark of the world market, even if it also unscrews, resists better than the WTI. It fell below $ 20 on Tuesday, still its lowest level since December 2001.
How affected is the petroleum industry by the pandemic?
To realize this, "it suffices to compare the current price of oil on its main markets - less than 20 dollars, therefore, for Brent - with that which it traded at the beginning of the year. Between 50 and 70 dollars a barrel. So roughly, the price was cut in half, ”he says.
This drop in prices is firstly linked to the collapse in demand caused by the global pandemic of Covid-19 and the associated containment measures. We no longer take our cars, the planes are nailed to the ground, the economy is at a standstill ... "Before confinement, we consumed 100 million barrels of crude per day," recalls Philippe Chalmin. Demand is expected to drop 30% in April, according to the International Energy Agency. "
However, on the other side of the pipeline, the producing countries are struggling to agree to reduce their production. After heated discussions, the OPEC + countries, which brings together the main oil producers, have agreed on a reduction in their production. "But only 10 million barrels a day and only from May," explains Guy Maisonnier.
Insufficient, therefore, to achieve a balance between supply and demand. And not sure that the oil countries are making more efforts. "Many depend on their oil exports and, even at $ 20 a barrel, continue to produce to maintain their economy," explains Philippe Chalmin. There are also sometimes technical difficulties which reduce production may turn out to be the most expensive option. In Russia, on certain deposits, closing the valves now means taking the risk of being trapped by the frost and not being able to reopen for a long time. Or at an exorbitant cost. "
Will the pandemic permanently mark the petroleum industry?
"Already in 2014, the world oil market had experienced a situation close to the one we know today, namely an excess of supply over demand," recalls Guy Maisonnier. This was explained by the American shale oil boom. It had taken three years for this to rebalance. "
This could be just as long this time, especially since this coronavirus pandemic adds an additional risk for the oil sector: that the demand for oil will not return soon, if ever, to 100 million barrels per day . "The aviation sector should not return to its pre-crisis consumption anytime soon," illustrates Guy Maisonnier. Or 8 million barrels a day. "
But it is difficult to make predictions on a black gold market where many parameters come into play. In particular, we will be looking at the American shale oil and gas industry, which was already based, before the crisis, on a fragile economic model. "We can expect bankruptcies to the point that the United States is losing its place as the world's leading producer of hydrocarbons," said the economist at Ifpen. What then to lower world production? "Yes, but on the other hand, countries which are today excluded from the world market - like Iran, under an embargo - could return," he continues.
The pandemic should also impact the investment capacities of oil companies. In the search for new deposits, for example. "This could translate into higher oil prices in the medium term, if demand starts to rise again and the sector has not made the investments to meet it," explains Guy Maisonnier.
The difficulties of the oil sector, good news for the climate?
"Containment is good news for the climate, but not the drop in the price of oils," corrects Philippe Chalmin.
Here again, we have to project ourselves into post-containment and with a view to reviving our economies. A historically low price of oil could be likely to slow the energy transition by impacting the competitiveness of renewable energies. "This risks jeopardizing the development of biofuels or the electrification of our vehicles", specifies Philippe Chalmin.
Guy Maisonnier nuances however: "We are in a new situation, oil prices will not remain eternally low," he believes. And they will remain so even less long if economies rely massively on this fossil energy for recovery. ”
Everything will also depend on the willingness of States to combine energy transition and economic recovery in their recovery plan. In France, several environmental NGOs, including Greenpeace France, Les Amis de la Terre or Oxfam, are concerned. Saturday, shortly after the vote on the amending finance bill in the National Assembly, they denounced "the refusal of the government and majority deputies to condition financial aid, in the event of recapitalization of polluting companies, to an in-depth change in their economic model ”. "This is similar to a blank check to the major polluters in the air, automobile and oil sectors," they write.
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What about the collapse in the price of natural gas?
In its fall, oil also drives its twin energy, natural gas, even if its price is less indexed today than that of black gold than it was in the past.
Here again, the question arises as to what impact will permanently low natural gas prices have on the energy transition. IFPEN makes a Norman response. On the one hand, the fall in the prices of this fossil fuel, used in particular to produce heating, could overshadow alternative solutions that emit less greenhouse gases, such as biogas.
On the other hand, these low natural gas prices could accelerate the exit of coal, natural gas power stations replacing those of coal, which emit more CO2. So good news this time.
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