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For Professional Clients and, in Switzerland, for Qualified Investors only. In Israel for Sophisticated Investors only.
English
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IDEAS AND KNOWLEDGE TO INSPIRE YOUR INVESTMENTS THINKING
30 April 2020

Over a barrel?

The oil market has for some time obsessed over the Saudi Arabia-Russia ‘price war’, but it is the Covid-19-related collapse in oil demand that is creating an unprecedented challenge for the industry.

 

The oil sector was already facing a long-term threat of substitution as the energy transition looms; it is not inconceivable that governments may now look to accelerate investment towards greener energy solutions, and to challenge oil companies to speed up their transition. As society, governments and executives grapple with the challenge of navigating this pandemic, the energy sector remains particularly susceptible to boom and bust cycles.

 

The flipside of all this is the possibility that a collapse in oil prices could catalyse a future supply shortfall which drives prices higher than before the Covid-19 crisis. Some of the production that will be suspended now may never return, while other fields may be damaged in the process.

 

Capital investment may return slower to the sector in the wake of this crisis, especially if further emphasis is placed on energy transition strategies. In this scenario, the industry’s future is full of unknowns, as there is no blueprint for this type of cycle and long-term investors must try to look past this uncertainty to identify future investment opportunities.

 

Laura Sheehan, global oil and gas analyst, Newton Investment Management.

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Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds.

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