The recent crash in global oil prices may help the government by way of savings in import bill but for the few Indian exploration and production (E&P) companies sustained low oil prices will severely impact revenue, profitability and expansion plans.
Globally, around $100 billion could be cut away from the E&P companies’ budgets in 2020 globally, and the reduction could grow further to $150 billion in 2021 in a $30 scenario as oil and gas firms scramble to save costs and salvage profits, according to Rystad Energy, Oslo-based energy consultancy firm.
Upstream companies had been keeping a close watch on oil prices since late-2019, as prices started reacting to trade war between US-China, global economic slowdown and an anticipated supply-glut in early 2020. Global oil prices began swaying since January 2020 as the impact of Coronavirus outbreak in China started impacting demand.
Oil prices finally plunged to $24 per barrel earlier this month as Russia and Saudi Arabia disagreed on production cuts and announced increasing production and slashing prices from April 2020.
The ongoing demand destruction due to Coronavirus pandemic and the projected supply glut in the coming months are expected to keep oil prices subdued in the coming quarter, with a possibility of prices falling below $20 per barrel in April as major oil producing companies increase production.
“Everything will take at least 3-4 quarters to come to normalcy if the outbreak is controlled. In the meantime, prices can go down to $20 also,” K Ravichandran, Senior Vice-President and Group Head, Corporate Ratings at rating agency ICRA told ETEnergyWorld.