The Nihon Keizai Shimbun (Japan): what will low oil prices? Tell John brown, Helen Wald, and Hiroyuki Takai

Because of the new coronavirus in the price of oil was fixed at a record low. There is a possibility that the economy of oil producing countries will be hit hard and that it would lead to extensive restructuring as well as reduction of the respective companies. According to forecasts, demand for oil will continue to remain low amid a prolonged pandemic. We talked with experts about the future prospects.

Former President of BP (“BP”), John brown (John Browne): the reduction of investment in oil

The current situation is reminiscent of the mid 1980-ies. Then, Saudi Arabia is supporting prices by controlling production, opened the tap fully, releasing oil into the market and prices collapsed. To exit this, you will need a lot of time. In that period it took more than 15 years.

The value of new York oil futures turned negative due to the fact that over the place to store the excess oil. Because there is no demand, it is necessary to stop production. It is the principles of Economics.

British “BP” and other large Western oil companies reduced investment in equipment in connection with the current crisis. If prices return to previous levels, perhaps, some investment will be restored. Nevertheless, most companies would be cautious to invest money in the development of oil fields and equipment for the production of petroleum products? Many oil fields have longer to pay off. Perhaps more profitable to invest in wind and solar power.

The new coronavirus was reminded of influential investors, presidents and corporations that there are forces outside of human control. How to stabilise a situation in which everyday life was destroyed overnight? The management of the oil companies need to think not only about efficiency but also about the endurance of the structure.

Oil circles need to respond to climate change in the context of the impact covid-19. Like other industries, the oil and gas industry also has to change.

As a Manager of “Bi-PI”, I wanted to be a part of the problem and part of the solution. It (a change of course to the concern for the environment) caused strong protests from the industry. 25 years ago the oil industry had to pay more attention to environmental issues, and it’s sad.

Investors began to openly distance itself from the coal industry, and, most likely, it will accelerate the waste and oil. If BlackRock and other large investment companies, said: “you can no Longer show tolerance towards companies that continue to dump greenhouse gases”, the behavior of the shareholders will also change.

The oil business needs help. We have developed the technology to seriously reduce CO2 emissions, but they cost too much, and introduce them failed. If the government helps, it will be possible to invest in this area. In the United States the widely discussed “carbon tax” on petroleum products.

Is there a way to use taxes. The essence of the structure is to tax products, which includes greenhouse gases. It is theoretically possible, but the political obstacles are high. However, this will happen when the concern of governments and of mankind environmental problems will increase.

Countries consuming the oil, it is important to increase the energy self-sufficiency. It becomes more real. It is also important to diversify energy sources. I hope the development of Japanese technologies in the field of hydrogen. Japan and South Korea are leaders in technology for the production of power supplies.

The President of the Transversal Consulting Ellen valde (Ellen Wald): impact on reforms in Saudi Arabia

Low oil prices will deal a severe blow to the reforms in Saudi Arabia, which seeks to diversify the economy. The crown Prince of Saudi Arabia Mohammed bin Salman al Saud in 2016, said that by 2020 the economy will do without oil. However, at the moment, Saudi Arabia is heavily dependent on oil revenues.

There were serious complications with financing. The government of Saudi Arabia announced measures of strict financial policy: increase in value added tax, but the budget deficit is mainly covered by foreign sources.

Perhaps the low price of oil will change the relationship between the people and the Royal family. The fact that the latter will not be able to provide services expected by the people, and promised to invest in the diversification of the economy.

On the stock exchange of Saudi Arabia dominates the national oil company, Saudi Aramco (which was released on the stock market in December 2019). Citizens bought 20% of shares of this Corporation.

Ordinary investors, who purchased shares of Saudi Aramco, will be disappointed if they fall in price because of lower oil prices. There are fears that the people’s discontent will increase, and the Royal family will increase pressure on the opposition.

Saudi Aramco is a source of strength for the Royal family. It will not allow new shareholders to interfere in the management of the company. The output of the Corporation on overseas stock markets was initially unlikely, but the collapse in oil prices will only complicate this process (the gap in the expectations of the Prince and the market valuation of the company).

In connection with reduction in demand due to epidemic OPEC+ have reached an agreement on production cuts, but it is not enough to stabilize the market.

The first mistake OPEC+ is that the agreement was reached in early April, however, before its implementation in may, the volume of production is not reduced. Despite falling demand, Saudi Arabia has worked to full capacity.

The second mistake is the misconception that the United States, Canada and other G20 countries will join the reduction proposed OPEC+. In these countries there is no centralized management of oil policy.

The President of the United States Donald trump hinted at cooperation with OPEC+, but concrete promises to do not. OPEC thought that trump will work, but the American President there is no such authority. In the United States is impossible at the state level to control the production of oil and from the point of view of the law, and from the point of view of the realities of the country.

Due to the decrease in demand, many oil companies have cut investment in equipment. Part of big Western oil companies reduced investment to the level that existed before 2014, when was the last price collapse. It is expected that this production will spin for a long time. At some point there is a lack of production.

And now oil — products, without which the economy can not do. We don’t yet have technologies that can replace oil in transportation, energy and chemistry. From-for falling of cost of oil will decrease the initiatives on the development of new technologies, such as renewable energy.

After the oil crisis of coronavirus, the picture will change, but the era of oil is not yet ended.

Head of the Washington branch of Sumitomo’s Takai Hiroyuki (Hiroyuki Takai): the growth of shale oil production will stop

The new coronavirus, apparently, put an end to the increasing production of us shale oil, which lasted from the beginning of 2000-ies. Most us shale circles there is a fear that due to the fall in oil prices by reducing global demand for energy investors to move away from oil.

Shale community has suffered from the collapse of prices in the period from 2008 to 2009 and from 2014 to 2016. However, then the demand for oil in emerging markets was good. Shale companies have recovered quickly thanks to the abundant investments.

This was an unprecedented situation, the global demand decreased by approximately 30%. Oil stocks have fallen and investors have stopped investing in high-yield low-interest bonds, which release the shale companies.

Most likely, the investment will not return to the shale rounds and after the pandemic. In recent years, investment in the field of environment, social Affairs and internal relations prevented the shale business. The new coronavirus is sufficient reason for remaining investors to commit to this field.

At the end of April, the WTI for the first time in history left in a minus. Oil futures are mainly engaged in hedge funds, however, after the price collapse in mid-March, approximately 70% joined money was private through exchange traded funds.

In particular, the large losses suffered by Asian private investors who have little understanding of the structure of cash transactions with WTI. The problem with crude oil storage in the US, not going anywhere, so the price of West Texas intermediate will continue to fall.

In contrast to the state oil companies of Saudi Arabia and Russia, the us shale industry consists of several thousand enterprises, including small businesses that produce several hundred barrels. If investment stops, they will not be able to get the money to develop and will be in a crisis situation. In April, the bankrupt Whiting Petroleum Corporation in middle management.

Previously, as a result of falling prices, the bankrupt company has reduced debt and tried to resume production, but now is more companies that will completely stop the activity.

Onshore and offshore oil storage around the globe can hold about nine billion barrels. After three months they will overflow. To release reserves accumulated during three months, will take a long time. It is expected that in may, us manufacturing will be reduced by 20%, but the downward trend in production will continue after the epidemic. The oil giants will have to change.

President trump, who welcomed the fall in oil prices, this time made efforts to restore the market. In case of error, the danger was to lose the support of the South and Central and Western regions, however, the oil circles have praised the art of the American leader, who urged Russia and Saudi Arabia to agree on production cuts.

Meanwhile, the decline in production to 9.7 million barrels a day agreed upon by the major oil-producing countries, does not affect the fall in world demand due to the new coronavirus. Apparent fragility of the oil shale industry, which was to turn the United States into the largest oil power, and now for U.S. energy policy is due for a serious tipping point.

Summary: you must prepare for the collapse of order and change

The spread of the novel coronavirus have shaken the existing oil-order. People have to review the style of work, and the business situation the global supply chain. Pre-crisis forecast oil demand unreliable.

For some time the futures prices turned negative, and it made me think that in the future oil may become a dead asset.

The three experts said that the situation around oil changed. Oil companies rush to change the business model due to regrouping of assets. Oil producing countries will have to undertake difficult reforms. The US is also forced to reconsider energy policy.

In General, the fall in oil prices is beneficial for the consumer, however, the chaos caused by the collapse of order, may cause damage to the world economy. All stakeholders need to prepare for unexpected changes.