The coronavirus has officially hit the global oil companies as oil prices continue to fall more, and more oil rigs are being shut down.
As reported by the Guardian, this has been the largest number of oil rig shutdowns in the last 35 years, reducing global oil production by nearly 1 million barrels a day, and that number is expected to increase.
In the U.S. oil producers “shut-in” 40 rigs just last week, which means they closed off the well so it stops producing. This is the largest one week drop in the U.S. since 2015, dropping the weekly oil rig count by 24%, according to a review from engineering group Baker Hughes.
U.S. shut-ins have reached over 900,000 barrels of oil a day with that number growing by the hour according to Goldman Sachs.
Considering the global climate crisis we all face, and the pressure fossil fuel companies have been under to reduce carbon emissions, this is a good thing for those who care about the planet. Nearly one month ago, before the numbers fell to this new low, the Guardian reported Mark Lacey, head of Commodities at Investment Manager Schroders, said fossil fuel stocks will struggle for profits:
Listed oil companies operating in this environment are more fragile than at any time in the past 20 years. The current oil price isn’t profitable even for Saudi Arabia.
Now prices have dropped even more, Brent crude is the international oil price benchmark that now sits at its lowest level in 18 years, $23 a barrel.
In Canada the price of oil has dropped to $4.18 per barrel, largely, they say, because the market in China is closed and shipping the oil normally adds $8 to $10 to the price. Goldman Sachs was recently quoted in a statement,
The demand shock is extremely negative for oil prices and is sending landlocked crude prices into negative territory.
It’s almost hard to believe, but it’s actually cheaper for oil producers to pay someone to come and take their crude oil away than it is to shut-in, or close down the well.
Depending on how long the coronavirus pandemic affects the world, it will continue to hurt the global oil production numbers and cost investors even more money.
According to Jeffery Currie, the Global Head of Commodities at Goldman Sachs, many oil wells may fail to restart which will push oil prices into “a very quick risk reversal towards oil shortages,” which would limit the profits despite oil prices that the public would see possibly doubling next year.
