FINANCIAL TIMES

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Oilindusrry reels fromhistork

crash
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The firstholf of2020 hasheen brutol

fortheoilindustry:globaldemand
droppedalmostalhirdatone sta.ge.a
marketsharewarbrough1an
onslaughtofSaudicrudeandUSprices
collapsedbelowzeroforthe ftrsttime
OilprDducers"recentsecond-quartu
earningsreflectthisdamage.withboth
globalsupermajorsand U5
independentswritingdownassetsand
posting huge losses
Asrhechartsbelowshow,deep

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1
"J:::;~;:a~:~:; balance
sheets.sac rificingoutputgrowthtodo

from upstream exploration and

prDductiontodownstream refining,the
coronav·ruspandem·c,p ·c ,and
unprc.:edentedvolatilityhascaused
ha,·oc.Despiteitsrecent recovery.
crudeisstilltradingataboutathird
belowlasiyear'saverageprice
A mighty industry has shrunk Where
onc eenergyba1tledfo rsupremacyin
rheS&P500"smarke1capita lisation.i1S
sliarehasnowdwindledto lessthan3

"Nerlncome

Across thewo rld, producers'bottom

lineswere hit hard in thesecond
quarter.Thecol lapseinprlcecoupled
withthel!Vaporntionindemandmeant
companiesswungfromhealthyprofirs
in 201 9todeep losses in2020,inmany
caseswiprecedemed in cheir
magnitude

Improvedpricesinthe thirdquar1er
willallowmany tot umaprofitagain
But for sorneitwill betoolate,asthe
des!ructiona lreadywrought leaves
thern strugglingwidergrowingdebt
pl lesa ndv,ithless money topay
shareholdersand res1oreinvest ors'
faith
Cl)
Capital expenditure

Companies haveresponded bycutling

costswherevertheycan.Planstodrill
morewellsandincreaseproduction
havelargelyheenaban donedas
prDducersfocuson tighteningtheir
beltsat theexpenseoffuture
expansion. The nurnber of rigs
operatinglntheUSisdownthree•
quarterscomparedwithlast;,ear

DriUingfewerwells tDdayme ans

prDducing lessoil tomorrow.
Companies"capacityforgrowthhas
beendiminished. txecmiveshave
acknowledgedthattheera of rampent
expansion intheUSshalepatch.which
ha s driven Americatobecome the
world's largest oilproducer,maybe

Refining

Thedownstreampart ofthe majon·

businesses-whererawcrude is
relinedintopetrol, dieseljetfuel and
otherproducrn-hasalsorome under
significant pressure.

Demandfortheruelrheyproducewas
slashedaspeoplestopped drivinga nd
flying. Andnow.as th e priceofcrude
recovers.ithnsdonesoatamuch
quickerpacethandemand and prices
forreftnedproducts.That hassqueezed
margins- especially in Europe's
ageingplams.which sellfuel intoa
stagnating market

Writedown s

Theeffectsof thepandemicwillbe
long-lasting,bringingthe peakinglobal
oil demandcloser(some analysts think
ithasalreadypass..d).Thishasforced
com panlestogra pplewith thefact that
manyof!heirassets may nowbe worrh
alotlessthantheywereayearago
l'ricess1aying\ower forlonge r will
mean muchoftheiroil willnormakeil
out ofthe ground
Thathas madeimpairmentsa them eof
recentmomhs, withcompanieswriting
downtensofbillionsofdollars'worth
ofassetsastheyprepareforalessoily
futu re.

S&Pequityshare

Energycompanies.once amongthe
world 's mostvaluable,havesuffered a
rapidfall fromgrac,,_Foryears.
F.xxonMobilboastedthernamleof
biggestpublidytradedcompanyinthe
world.butltisnowdwarfedby
technologygroupssucha sAmazon,
Apple and Google
Thesector hasshrunkrapidly inrecenr
years.ln2008. energy stocksmade up
about16percemofthevalueof
companiesontheS&l'500.Theynow
accountfor just 2.6percem