What WTI Oil Price Crash Portends For Energy Transition, Future Of O&G Market

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The oil and gas market took an unprecedented turn on April 20th when we saw the West Texas Intermediate (WTI) oil traded at negative prices – producers were actually paying buyers to take their barrels.

A COMPOUND DISRUPTION of storage capacity constraints, COVID-19 related hit on short-term demand, uncertainty about long-term demand, additional barrels in the market and the particularities of how oil is traded (Tuesday was the final trading day of WTI futures contracts for physical delivery in May) are some of the key factors that led to this situation.

Although today WTI is no longer traded in the “red territory”, the pressure could mount again when the June physical delivery trading window pushes to the end. The current market context is exerting tremendous pressure across the oil and gas industry and those companies with higher break-even prices and smaller balance sheets are more exposed.

This situation does not only affect companies but many countries and their populations. For exporting countries (particularly in the developing world), oil and gas-related revenue funds all sort of activities, including health. Without a steady flow of petrodollars, governments of these nations could find that addressing the health emergency created by COVID-19 will be even more challenging. Consuming countries could see this as windfall but nations where petrol
consumption is heavily taxed at the pump will see state coffers impacted.

A further question in the minds of many is how the current oil and gas crisis will impact energy transition plans. While it is difficult to say how long the demand slump will last, it poses challenging questions to the near term trajectory of the global energy transition.”

Pedro Gomez is the Head of Oil and Gas at the World Economic Forum

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