Apr 27, 2020 - Economy

Oil industry has more bleak days ahead as coronavirus crushes demand

Data: Baker Hughes; Chart: Axios Visuals
Data: Baker Hughes; Chart: Axios Visuals

Projections of deep pain in the oil sector are increasingly materializing on the ground amid the pandemic-fueled collapse in oil prices and consumption.

What's happening: The combination of years of oversupply and plunging demand means oil wells are filling up quickly.

  • In Russia, talks have begun to to burn its oil to take it off the market, sources tell Reuters.
  • Energy research company Kpler said onshore storage worldwide is now roughly 85% full, as of Thursday, and the International Energy Agency estimated demand will fall by 29 million barrels per day this month.
  • IEA predicts consumption will pick up in May, but researchers caution that its expectation of a 12 million barrel per day fall in year-over-year demand may be too optimistic.

Where it stands: Oil prices are falling again Monday “as producers scrambled to shut down wells before the world’s crude storage capacity reached its limit,” the Wall Street Journal reports.

  • Meanwhile, Diamond Offshore Drilling, a big Houston-based contracting company, filed for Chapter 11 bankruptcy protection Sunday, citing "unprecedented" price and pandemic developments.
  • The bankruptcy is a fresh sign of what's now an ongoing decline in production — and a drilling pullback — in the U.S. and elsewhere that is battering companies and their workforce.

What they're saying: "What happened in the futures contract the other day indicated things are starting to get bad earlier than expected," Frederick Lawrence, VP of economics and international affairs at the Independent Petroleum Association of America, tells Reuters.

  • "People are getting notices from pipeline companies that say they can’t take their crude anymore. That means you’re shutting down the well yesterday."

The big picture: It has been clear for weeks that the price and demand collapse would start pushing output lower both in the U.S. and elsewhere.

  • But Ben Luckock of commodity trading giant Trafigura Group tells Bloomberg that last Monday's plunge of U.S. oil futures into negative terrain "really focused people’s minds that production needs to slow down."
  • “It’s the smack in the face the market needed to realize this is serious," he said.

By the numbers: The BW Research Partnership estimates that nearly 50,000 U.S. workers in oil and gas fields lost jobs in March. Their report on energy sector job losses calls their estimates "conservative" and projects they'll be worse in April.

Go deeper: The aftermath of oil's march into the unknown

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