Appec hears oil industry susceptible to more shocks

The oil industry remains susceptible to more shocks after the unprecedented blow to oil demand caused by the Covid-19 pandemic, according to a panel discussion today at the virtual Platts Asia-Pacific Petroleum Conference (Appec) 2020.

Trading firm Vitol's global head of research Giovanni Serio said the world needs to be prepared for volatile demand, which is fairly new for the oil industry.

"The outlook for the virus and its spread is absolutely key here," he said. "We are used to an oil industry where the shock comes from the supply side and therefore we always think about the role of Opec in terms of a response to sudden shifts in supply. And we have instead an absolutely unprecedented shift and shock on the demand side."

This could exacerbate instability in some oil-producing countries, according to Citigroup managing director Ed Morse.

"We are seeing countries that are overly dependent on oil earnings and cannot pay for the civil service, healthcare, education, security, and the restive populations within them," he said. "The greater concern is that we're going to see, as we have, after 1998 and 1999, a dip in demand and the gigantic build in inventories to a billion barrels."

Norwegian state-controlled Equinor's senior vice president and chief economist Eirik Waerness said many international oil companies are preparing for another shock, albeit one of supply.

"We have increased pressure, lower demand requirements with softer investments and explorations," he said. "We have stopped drilling, gradually preparing for what could become a spike. That type of supply impact would have a strong impact on the markets sooner than we would think… so what I am looking out for is another spike, another super cycle."

Investment in the oil sector has also taken a hit, Saudi-based oil investment fund Apicorp's chief executive Ahmed Attiga said.

"Approximately $80bn of capex cuts have been announced for 2020. That is a decrease of more than 30pc from the 2019 investment budgets in the sector. That is where a key pressure point will evolve," he said.

By Yvette Choo