After months of deep and painful slippage, fuel demand around the world is finally start stuttering again. Data on traffic, pipeline flows and sales at gas stations in the city of San Antonio, Beijing and Barcelona, Texas, all suggest that the drop in demand for oil may have already reached a hollow. But don’t rush to pop the champagne corks right away. So far, it looks like the road to a full recovery will be more difficult than getting out of an underground pit, with many oil traders predicting that it may take a year or more before demand returns. pre-crisis levels.
A growing minority is even less optimistic and think they will never be able to return.
Royal Dutch Shell plc (NYSE: RDS.A) belongs to the latter camp: CFO company Jessica Uhl warned investors of “…the destruction of major demand that we don’t even know will come back” , During last income call.
The Anglo-Dutch supermajor, a deepwater operator and a major natural gas trader, stunned investors after announcing the first dividend cut since the 1940s, saying it was necessary to preserve liquidity given the uncertainty as to when the pandemic will finally be contained.
Shell declared a quarterly dividend of $ 0.32 / ADS compared to an earlier dividend of $ 0.94, good for a reduction of 66%. It also announced revenues of $ 60.03 billion (-28.3% year-on-year), $ 9.58 billion less than the Wall Street consensus; non-GAAP EPS of $ 0.37 fell by $ 0.09 while GAAP EPS of $ 0.00 fell by $ 0.18. Reducing the dividend alone should free up about $ 10 billion for bottom line. The reduction in Shell’s dividend will free up about $ 10 billion for bottom line.
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Dividend reset surprised many analysts as oil majors Chevron Corp. (NYSE: CVX) and ExxonMobil (NYSE: XOM) both announced sharp cuts in investment, but left the dividend untouched.
It may only be a matter of time before they also follow.
Analysts warn that a V-shaped recovery is highly unlikely, with the scale of the destruction of demand – estimated at 30 million barrels per day in April – making the long and difficult road to the world of before the crisis demanded about 100 million barrels a day.
Shell says it is preparing for the worst-case scenario: asking to never fully recover.
“I think a crisis like this has the potential to capitalize society in a different way of thinking, just like the Paris agreement did,“Company CEO Ben van Beurden told investors.
Url says the company expects an “L-shaped recovery”, implying that oil demand will remain at ~ 9% below last year rather than rebounding strongly or even slowly in a trajectory in U.
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Citigroup does not see a full recovery in demand for kerosene until 2022, while the CEO of Boeing predicts that passenger traffic will remain depressed for another three years.
The IEA is, however, a little more optimistic.
The energy analyst estimated that consumption in May would be 25.8 million barrels below this level, while consumption in June should be approximately 14.6 million barrels below normal. However, he sees December consumption just 2.7 million barrels below 2019 levels.
Peak oil demand
With oil and gas companies about to lose $ 1 trillion in revenue in the current year – 40% less than $ 2.47 trillion in 2019 revenue – it is not hard to see where the bleak outlook is coming from.
But the idea that we could have surpassed the peak in oil demand is not that far-fetched.
Last year the IEA predicted that world oil demand to peak in mid-2020s and plateau around 2030.
The IEA had predicted that global demand for oil would increase by about 1% per year to 105.4 million barrels per day by 2025, after which growth would drop considerably with consumption peaking at 106.4 million barrels a day.
The silver lining, however, was that natural depletion would reduce oil supplies and lead to higher prices, averaging $ 90 per barrel in 2030 and $ 103 in 2040, the agency said.
The Covid-19 pandemic has radically changed the dynamics of the market, and no one seems sure of the look of the energy sector when it is finished. Don’t be surprised if global consumers and investors decide, once and for all, to vote with their wallets and give prominence to the sector as Shell predicted.
By Alex Kimani for Oilprice.com
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