The coronavirus pandemic and resulting plunge in crude prices will result in a leaner, stronger oil industry but raise the risk of shortages further down the line, Goldman Sachs analysts said on Monday.
Crude prices suffered another sharp fall on Monday as the pandemic worsened and the Saudi Arabia-Russia price war showed no signs of abating.
Refiners across the world, meanwhile, have been forced to halt operations because of steep falls in demand that have sent traders and analysts scrambling to cut their forecasts.
“If pipelines get clogged up as reﬁneries shut down, inventories cannot build, reducing the cushion and creating a very quick risk reversal towards oil shortages,” Goldman said in a note.
This would in turn cause an oil shortage, pushing prices above the Wall Street bank’s $55 a barrel target for 2021, it said.
“This will likely be a game changer for the industry,” the bank said.
“Big Oils will consolidate the best assets in the industry and will shed the worst ... when the industry emerges from this downturn, there will be fewer companies of higher asset quality, but the capital constraints will remain.”
Oil has been hit disproportionately by the “coronacrisis”, sending landlocked crude prices into negative territory, Goldman said.
“Paradoxically, this will ultimately create an inflationary oil supply shock of historic proportions because so much oil production will be forced to be shut in,” it added. “The oil price war is made irrelevant by the large decline in demand and has made a coordinated supply response impossible to achieve in time.”
The bank also said that demand from commuters and airlines, which account for about 16 million barrels per day of global consumption, may never return to their previous levels.
The upstream sector could lose about 5 million bpd of supply capacity, it added.