Key Takeaways: Industry Outlook Factors affecting oil industry Impact of Covid-19 on oil industry Measures initiated by OPEC Growth Forecast

1. Impact of COVID-19 in Oil Industry
Part 2
Dr. CA. Nabeel Ahmed
B.com, ACA, CMA, AICWA, AIA, MBA, Ph.D.

2. Legends used in the Presentation
FDI Foreign Direct Investment
OPEC Organisation of the Petroleum Exporting Countries
PSU Public Sector Units
WTI West Texas Intermediate

3. Presentation Schema
Introduction
Foreign Direct
Investment
Factors Affecting Oil
Industry
Industry Outlook
Impact of COVID-19 OPEC Measures Government Measures
Declaration of
Cooperation

4. Industry Overview

5. Introduction
The oil and gas sector is one of the core industries in India
It plays a major role in influencing decision making for all the other important sections of the economy
India’s economic growth is closely related to energy demand therefore the need for oil and gas is projected to grow more, from Q2
2020, thereby making the sector quite conducive for investment

6. Foreign Direct Investment
49% FDI in Indian petroleum sector is allowed under automatic route in
Petroleum refining by Public Sector Units (PSU), without disinvestment or
dilution of domestic equity in existing PSUs
100% FDI equity Inflows in Petroleum is allowed in exploration activities of oil
and natural gas fields under the automatic route
100% FDI is allowed in infrastructure related to the marketing of petroleum
products & natural gas under the automatic route
During the period of April 2000 to March 2019, India acquired FDI amounting
to USD 7 billion

7. Factors Affecting Oil Industry
Current Crude Oil
Supply
•An ample supply means the price per barrel drops. When supply is low, the price per barrel increases.
The supply levels vary depending on current production and current demand.
•The Organization of Petroleum Exporting Countries (OPEC) accounts for about 40% of the crude oil
production in the world. OPEC exports about 60% of all internationally traded petroleum
•With such a large share of the global oil output, OPEC has a strong impact on the current supply. The
organization can restrict or increase the supply to affect global pricing
Demand for Oil
•Demand depends on economic factors and GDP.
•With COVID 19 – we can be certain that global demand has fallen over 30% for time being due to
shutdowns.

8. Factors Affecting Oil Industry
Future Supply and
Reserve
•Many countries hold reserves of crude oil for times when oil prices increase dramatically.
The government stockpiles crude oil when the barrel prices are low
•If the price spikes, the country pulls from the reserves to help minimize the impact of
increasing oil prices
Geopolitics
•Since supply is determined by the big oil producing countries, tension with one of those
nations can cause major problems.
•So if there’s war or conflict in an oil producing region, crude inventories could seem
threatened, and that could ultimately alter the price of oil

9. Oil Demand of China
China is considered to be the largest importer of oil in the
world
China’s annual crude oil imports in 2019 increased to an
average of 10.1 million barrels per day
China remains the world’s top crude oil importer, surpassing
the United States in 2017
China’s new refinery capacity combined with flat domestic
oil production, were the major factors contributing to the
increase in China’s crude oil imports in 2019
10.24 10.75 11.24
11.99 12.3 12.84
13.52
0
2
4
6
8
10
12
14
16
2012 2013 2014 2015 2016 2017 2018
MILLIONBARRELSPERDAY
YEAR
Oil Consumption

10. Chinese Economy
More than half of China extended a Lunar New Year holiday by at
least a week in an effort to blunt the spread of the virus
Nearly all major industrial enterprises have resumed work, while the
return-to-work rate for smaller businesses has topped 80%,
according to official reports
However, business activity is just getting back to normal, especially
in the services industries, and the spread of the virus overseas has led
to a drop in demand for China’s exports
China reported Friday that its first quarter GDP contracted by 6.8% in
2020 from a year ago as the world’s second largest economy took a
huge hit from the coronavirus outbreak

11. Top Exporters
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2017 2016 2015 2014 2013
THOUSANDMETRICTONS
Export of Conventional Crude Oil
Saudi Arabia Russia Iraq Canada United Arab Emirites

12. Industry Outlook
Global attention is increasingly focused on the need to accelerate clean energy
transitions in order to mitigate the risks of climate change
With its major emissions footprint, the energy sector – including the oil and gas
industry – is at the heart of the matter.
Demand growth for gasoline and diesel between 2019 and 2025 is set to
weaken as countries around the world implement policies to improve efficiency
and cut carbon dioxide (CO2) emissions
The rising popularity of electric vehicles among the public worsens the
situation for the energy sector
Oil demand growth slows because demand for diesel and gasoline nears a
plateau as new efficiency standards are applied to internal combustion engine
vehicles and electric vehicles hit the market

13. Present Scenario of Oil Futures
US oil prices traded below zero for the first time ever, meaning producers or traders were essentially paying other
market participants to take the oil off their hands
The price crash came as the US benchmark oil contract, known as West Texas Intermediate (WTI), headed towards its
expiry date for May delivery, the month when demand hit from lockdowns and travel restrictions is expected to peak
Each month WTI future contracts, which trade on CME Group’s New York Mercantile Exchange, need to be settled with
physical delivery of crude oil
Analysts believe a lack of available storage capacity at the WTI contract’s delivery point of Cushing, Oklahoma set off
panic among traders holding derivative contracts, who found themselves with nowhere to put the oil
Those not intending to take physical delivery have to square off their contracts before the expiry date. So, speculators
who did not want to take delivery in May proceeded to unwind their positions, leading to the massive fall in prices
Although May WTI futures prices went negative, June futures prices are hovering around USD 20.50 a barrel. The reason
for it may be due to the speculation that oil demand may increase or the oil storage space maybe created

14. Monthly Price of Oil Futures (WTI)

15. WTI Crude and Brent Crude
Brent oil has traditionally quoted higher than WTI, with the difference being about USD 6 to 7
a barrel between the two
Brent is a superior grade produced in the North Sea off the British coast and is the accepted
benchmark for this part of the world. The market that it serves is considerably larger than that
of the U.S. and demand is, therefore, higher
Transporting oil from the U.S. to Asia is not economical, thus limiting the scope for the WTI
grade. Refineries in Europe are configured for Brent, rather than WTI. Prices of Brent are,
therefore, always higher than those of WTI
One of the reasons for high price for Brent crude may be due to the oil storage facility. Since
Brent crude are produced in sea, they can utilize the oil tankers for storage
However, WTI Crude is produced on land 500 miles away from the sea. This gives an edge to
Brent crude in the storage aspects

16. Impact of COVID-19

17. Impact of COVID-19
The pandemic crisis has triggered large erosion of demand globally, resulting
in a sharp decline in crude prices
The arrival of the coronavirus is rattling a global oil market that was already
facing challenges
On the demand side, growth in 2019 was significantly weaker than expected
and new vehicle efficiency measures have started to weigh on transport fuels
On the supply side, geopolitics remain a wild card. Even before the
coronavirus, markets had been over-supplied, leading OPEC producers to cut
output
One of the largest contributors to global oil demand destruction is the failing
airline industry with the grounding of most international and even domestic
flights

18. Fall in Demand
The spread of Covid-19 poses a significant threat to the
global oil and gas industry
Continued operations will likely become increasingly
difficult due to workforce shortages as employees are
infected by the coronavirus and the practical difficulties in
many cases of social distancing
China’s oil demand growth accounted for more than 80% of
the global oil demand growth
The shutdown of the Chinese economy in the wake of the
virus has triggered a collapse in global oil demand of 1.1
million barrels per day
5.42 5.66
6.18
6.73
7.63
8.42
9.26
10.2
2012 2013 2014 2015 2016 2017 2018 2019
MillionBarrelsperday
Year
China Oil Imports

19. OPEC
OPEC is forecasting further pain and weak crude oil demand as the coronavirus pandemic continues
According to its monthly report, global oil demand is slated to drop by 6.8 million barrels per day this
year
The International Energy Agency has also forecast that oil demand will plummet as the coronavirus
pandemic continues
So far, the restrictions imposed to control the virus have led to tumbling fuel consumption, amid product
inventory builds, severely damaging jet fuel markets and driving gasoline margins into negative territory

20. Growth Forecast
Oil prices continue to fall, charging toward a new 18-year low as gloomy demand outlooks persist even after a
historic production cut
Oil prices have declined 20% even after OPEC agreed to a historic production cut in an effort to stabilize
the industry ravaged by the coronavirus pandemic, which has cratered global demand
Moody’s Investors Service sharply cut India’s growth forecast for calendar 2020 to 2.5% from 5.3%
Moody’s expects real GDP in the global economy to contract by 0.5% in 2020, followed by a pickup to
3.2% in 2021
Although governments and regulators globally are taking measures to contain the impact on their
economies, which are likely to grow and deepen, the downside risks to growth remain sizable
Fiscal and monetary authorities are increasingly stepping up the level of support to their respective
economies

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