Goldman Sachs is predicting oil prices could hit $20 a barrel following the spread of the novel coronavirus and the tense Saudi-Russia oil and gas price war that erupted at a recent meeting of the Organization of Petroleum Exporting Countries (OPEC). All eyes are now on oil and gas prices and the stock market, and pump industry professionals are wondering how this is going to affect the industry in the short and long term.
Pumps & Systems is leaning on its authors and experts in the field to weigh in on what’s going on and to shed light on what to expect. This week, Amin Almasi, a principal machinery/mechanical consultant in Australia, gives us some insight.
“Businesses are dealing with lost revenue and disrupted supply chains due to factory shutdowns, quarantine, etc. With coronavirus hitting many sectors including project developments, construction works, manufacturing and travel/tourisms, demand for raw materials such as oil, coal, etc., [has] dropped and prices [are] falling. This further affects new projects and the pump market,” Almasi said via email.
Oil and gas tankers were being turned away from China as the coronavirus brought the economy to a halt, according to Al Jazeera. This type of decrease in use could have an impact on the number of development projects that get underway. In fact, Exxon announced earlier this month that it would cut the number of oil rigs operating in the Permian Basin as energy demands plunge.
Almasi predicted the following key impacts:
“Fewer development projects in oil, gas and energy sections means less pumps are needed in these industries,” he said.
Yet, developments and activities in pharmaceutical, medical and hygiene product industries are expected, so more pumps will be needed in these sectors.
“The pump manufacturing capacity in Italy and China may temporarily be reduced,” Almasi said. “However, this seems [to be] a short-term effect.
“The overall near-term impact on pump industry is largely determined by how effective all control measures, including both medical and economic measures, will be through [the] following months,” Almasi said. “And when the recovery of production and economic activities will occur.”
When it comes to the oil and gas market, Saudi Arabia and Russia have been working together to stabilize oil prices for three years, according to Al Jazeera. The two countries clashed when Saudi Arabia insisted they cut oil supplies by 1.5 million barrels a day, Al Jazeera reported. The news outlet states that Russia is upset about sanctions against its oil giant, Rosneft Trading. The United States Department of the Treasury’s Office of Foreign Assets Control imposed sanctions last month due to Rosneft’s support in selling Venezuela’s oil. In turn, Russia has wanted to get Saudi Arabia on its side to fight against U.S. shale producers, Al Jazeera says, as Russia feels the U.S. has had an easier time on the back of OPEC+ production cuts.
“Saudi Arabia and Russia intensify the oil production war,” Almasi said. “Following the disagreement between Russia and Saudi Arabia, both have been dropping their oil prices and plan to raise their oil production in the coming weeks. This, combined with coronavirus effects, reduces the oil prices to very low levels.”
Almasi said to also consider two important things:
“This is not a new matter and similar things in smaller scales happened from [the] Cold War era to current time,” he said. “From decades ago, there has been, time to time, competitions between Soviet Union (now Russia) and Saudi Arabia as two major oil producers.
“This is a multifaceted tension between two countries with complicated social, political and regional aspects.
“Focusing on the effects of this oil production war on the pump market, in general, this will lead to sustained low oil prices and, consequently, fewer project developments and the reduction in demand for new pumps,” Almasi said. “However, the door is open for further negotiations, new oil production agreements and relatively higher oil prices.
“On the other hand, if low oil prices continue for many years to come, lack of investments and delay of new developments will eventually reduce the global oil production and increase the oil price in future. At that time in future, more pumps will be needed for oil, gas and energy developments.”
For more updates on how COVID-19 and other factors are impacting the industry, check out more coronavirus coverage.