This week, experts commented that oil prices decreased with the increasing sector’s crisis as new investments are unlikely to happen at an energy conference this week. Because of pandemic-related restrictions, there was a significant reduction in oil usage. Earlier this 2020, the May contract for U.S. benchmark West Texas Intermediate crude decreased drastically for the first time with its total oil prices dropping at about 40% since the beginning of 2020.
At the latest S&P Global Platts’ Platts Asia Pacific Petroleum Virtual Conference (APPEC) 2020 this week, analysts said that drawing investment to the sector would be challenging because of the evident poor performance throughout the industry,
Ben Luckock, who is Trafigura’s co-head of oil trading at commodity trading company, mentioned that it might be “hard to see where the investment comes from.”
Luckock explained that, with the decline in prices of oil and corporate valuations, capital expenditure in E&P (exploration and production) companies in the energy sector have plunged. These companies used in the starting stages of energy production are for searching for and extracting gas and oil.
“Who is going to fund our next investment cycle? Indeed, is anyone going to be incentivized to fund us? Returns on the E&P companies as an investment have been poor.”
Ben Luckock
While returns on the S&P 500 have boasted a 70% increase since 2015, he pointed out returns of E&P companies fell by 70% over the same period.
Arab Petroleum Investments Corporation (Apicorp) CEO Ahmed Ali Attiga, mentioned that the energy sector is about to face a “huge hit” when it comes to investments.
Additionally, research firm Rystad Energy projected that E&P companies may lose around $1 trillion in revenues this 2020, a 40% decline year on year. In the previous year, the industry made $2.47 trillion in revenues.
“Regardless of when peak demand happens, which is now harder to forecast than ever, we’ll still need tens of millions of barrels of oil a day for years to come. And we need to see investment happen to find, develop, and produce those barrels.”
Ahmed Ali Attiga
The International Energy Agency on Tuesday decreased its predicted 2020 oil demand growth. It trims its outlook for the growth of global oil demand to 91.7 million barrels per day. It signifies a contraction of 8.4 million barrels per day year on year, which is more than the previous forecast for an 8.1 million contractions.
However, Attiga told CNBC last Wednesday that investors should perceive times of crises as investment opportunities as well.
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