Understanding Energy | Riding Oil Market’s Rollercoaster
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WORLD oil prices surged to four-month highs earlier this week on hopes that a COVID-19 vaccine was closer to reality. But as we have come to learn as we pay more attention to global oil markets now that Guyana is a key crude oil producer, it is hard to predict what will happen next.
Though the oil price seems to have bounced back from its below-zero plunge of just a few months ago, we cannot afford to be complacent that everything is rosy ahead. So many factors can contribute to the daily swings in commodity markets: the global economy, production policy of OPEC and other key oil producers, geopolitics, a COVID-19 resurgence or even the weather.

What is certain is that the publicly-traded oil companies will be turning in second-quarter financial results in coming days and the news probably is not going to be good. And policymakers, especially those in oil producing countries like Guyana, should keep that in mind when making decisions that could impact the investment climate.
Respected news agency, Bloomberg, predicted that the April through June financial performances of the top five international oil companies (IOCs), including Stabroek block operator Exxon, will be the glummest since the early 2000s. “Worst-in-a-generation oil prices combined with OPEC production cuts, collapsing refining margins and millions of barrels of unsold crude mean no facet of Big Oil’s business has emerged unscathed,” Bloomberg noted.
In an era of uncertainty brought on by the global pandemic and exacerbated closer to home by the prolonged election drama, it is clearer than ever the importance of saving for a rainy day. And projects that may have made financial sense a few years, or even months ago, are not as attractive now given low prices and sluggish demand from a global economy still reeling from the impact of stay-at-home orders.
Leading UK agency, Fitch Solutions, noted in a report a few days ago that the price collapse led to significant capital expenditure cuts among IOCs which could hamper exploration and development projects globally. “(Since in Guyana and Suriname), the exploration programmes of a number of companies is at early stages or has not commenced yet, IOCs could postpone investments there, channeling spending on the low-cost, high reward operating assets to support revenue stream in times of lower oil prices,” it said.

Major oil companies are accustomed to risk and uncertainty and plan their investments for the long-term. But there is a limit even for the largest of the majors, especially at such a turbulent time. Though Exxon has made it clear that it is pressing on with development and is seeking approval of the Payara project, its third major development offshore Guyana, the post-election uncertainty coupled with the challenges presented by the global pandemic are hardly reassuring.
And while oil prices are inching higher and hopefully the worst of 2020 is behind us, Guyana needs to get to work to put into place the kinds of policies – a Natural Resources Fund, economic diversification, transparency initiatives, development of key regulatory or legislative initiatives and project approvals – that will make us more resilient to weather future economic and commodity price cycle swings.

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