Question

Living in the province of Alberta, it is easy to see the importance that oil has to our economy.

1. Briefly describe the current situation facing the global oil sector. (approx 200 words)

Answer 1

As markets, companies and entire economies reel from the effects of the global crisis caused by the coronavirus (COVID-19) pandemic, oil prices have crumbled. The impacts will be felt throughout oil's global supply chains and ripple into other parts of the energy sector.

Pressure is coming from all sides: a precipitous decline in global oil demand as the pandemic has slashed fuel consumption, especially in the transport sector, aggravated by a supply shock due to the end of restraints on production from OPEC producers and Russia (OPEC+). The scale of the collapse in oil demand, in particular, is well in excess of the oil industry's capacity to adjust.

There is now an additional, even more pervasive threat facing many producers, irrespective of their operating costs or strategies. As demand plummets, the entire supply chain of oil refining, freight, and storage is starting to seize up, making it increasingly difficult to push new supply into the system. Prices available to producers have fallen to single digits in Western Canada and there have even been incidences of negative pricing for some grades in parts of North America. For some producers, there could soon be no place for their oil to go.Some existing production will grind to a halt.