Tuesday 26 May, 2020

Economist: Low oil prices concerning, but natural gas remains stable

UWI economist Dr Roger Hosein said that the recent fall in WTI oil prices is a cause for concern, but said on a positive note natural gas prices remain stable at this time.

WTI prices fell to around zero on Monday however Brent crude prices, the international benchmark, fell slightly to around $26.

Demand for oil has collapsed so much due to the coronavirus pandemic that facilities for storing crude are nearly full. Traders are hesitant to purchase crude with nowhere to store it.

Dr Hosein told Loop News that although it’s a serious cause for concern, there’s no sense in panicking at this time.

“The price of oil today dipped today below negative in some markets and that’s a serious cause for concern. However, the price may recover tomorrow, and if that occurs we would need to monitor the fluctuation over a longer period of time to get a more accurate picture.”

Dr Hosein explained that the negative value of WTI crude was due to the cost of oil production being superseded by storage costs, as a result of the slowing down of the global economy under the current COVID-19 pandemic.

However, natural gas, which accounts for about two-thirds of government's energy sector revenue, remains stable.

“We shouldn’t be totally alarmed as gas prices remain fairly stable, and gas storage is less complicated…if there’s a surplus you can flare it off.”

As of Monday afternoon, natural gas prices increased by 20 cents to $1.95 MMBtu (Trinidad and Tobago’s 2020 budget is based on oil prices of $65 per barrel and $2.75 MMBtu).

He said the tumultuous effect of the COVID-19 pandemic has resulted in many financial disruptions, but a focused, united approach is needed to tackle it.

“We need a more tenable plan to carry this economy forward, but if we work together we can ride the storm out. We do not need disenchantment, we need unity at this time.”

“We have to be tough and strong. It’s a trying time but if we keep a level head we can make better decisions.”

He said although there is a possibility of job losses within the oil industry, it is a capital-heavy industry, however it is to be monitored.

“All over the world we are seeing the catastrophic economic effects of the pandemic. It’s happening across industries, and across all countries. However we must keep a level head and plan our way forward.”

State-owned company Heritage Petroleum announced this week it would be cutting capital expenditure by 49 percent and that operating expenditure would be reduced by 21 percent in the revised Heritage budget.

The company said as oil prices were expected to be ‘in the low teens’ it would be storing oil production until the market improves.

The company said it has a storage capacity of around 3.5 million barrels which accounts for about 2.5 months of production.

The company has also halted all new recruitment save for critical jobs.

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