Even after having made it clear that its multi-billion dollar budget for the next five years takes high-priority based on its ongoing oil recovery operations offshore Guyana, the US oil company ExxonMobil is seemingly rethinking its operating strategy, going forward, on account of the raging coronavirus pandemic that is now menacing key sections of the global economy.
Stabroek Business has reported in this issue (see page *** ) on the disclosure made by Exxon Chairman and CEO Darren Woods regarding the company’s projected US$35 billion investment in its operations through to 2025, However, after its evaluation of the impact of the coronavirus pandemic and particularly its impact on the global oil industry, the company’s CEO on Tuesday was quoted again in the media, this time as asserting that the months ahead may prove to be what one report describes as a “make or break” period as it cuts capital spending plans and shifts some of its employees to home offices.
ExxonMobil goes further, according to an account published on NGI’s Daily Gas Price Index, making public the fact that it is now reconsidering its 2020 capital expenditure plans, in effect, going along with other exploration and production companies that had signalled fairly significant spending cuts even before the coronavirus menace had become as formidable as it now is.
Expert assessments suggest that the global oil industry could be one of the coronavirus’s biggest victims even as the price war between Russia and the Organization of Petroleum Exporting Countries (OPEC) rages. While ExxonMobil may have dropped a broad hint about the likely reassessment of its spending priorities this year, the report alluded to in this story does not specify how or whether its reassessment is likely to impact its Guyana operations.
The impact of the coronavirus on the oil industry notwithstanding, global oil analysts appear to trust the resilience of the tried and tested oil companies, asserting that the shakeup in the sector notwithstanding, most of the exploration and production companies will survive what one analyst described as “even this ultra-depressed scenario.”
Since January this year the rapid spread of the coronavirus has significantly reversed nearly all the positive momentum that oil prices had gathered during roughly the final third of 2019. The assessment, going forward, is that as the virus continues its spread beyond Asia, the global oil market will continue to absorb losses though it is difficult to say how deep those losses will be and the length of time for which they are likely to prevail.
There are two significant ways in which the coronavirus affects the oil industry and more specifically the oil market. Accordingly, supply chains flow, often to a near crawl and industrial activity declines as companies send workers home. These developments impact directly and significantly on oil consumption and informs oil demand calculations. Secondly, the stock market reaction to the effect of the coronavirus on the global economy builds a projection of global oil demand over the long-term. As broader market sentiment about the health of the global economy declines, so do projections about the future oil demand curve, prompting flight away from oil and energy stocks and further drawing down prices.
