Oil and Gas

On 6 March 2020 the oil ministers of OPEC+, the alliance that Saudi Arabia, Russia and twenty-odd other producers had formed in December 2016, met to agree a response to a new coronavirus that was already closing factories in China. Saudi Arabia wanted deeper production cuts. Russia refused. The talks collapsed, and within days Saudi Aramco cut its official selling prices and announced that it would produce at record levels from April. On Monday 9 March Brent crude fell about 24% in a single day. A price war had begun at the moment the world was about to stop travelling.

Lockdowns then removed perhaps a fifth or more of global oil demand in April (estimates vary). Oil kept coming out of the ground, because wells, pipelines and refineries cannot be switched off and on like lights, and the surplus went into storage until storage ran out. On 12 April OPEC+ agreed a cut of about 9.7 million barrels a day, the largest coordinated cut on record, with informal help from the United States and other G20 producers. It came too late for one contract. On 20 April 2020 the May futures contract for West Texas Intermediate, which requires physical delivery at Cushing, Oklahoma, settled at −$37.63 a barrel (NYMEX). Holders of expiring contracts who had nowhere to put the oil paid others to take it. Brent, a seaborne benchmark with ships to fill, never went negative; negative WTI was a fact about tanks in Oklahoma rather than about the value of oil. But it was the clearest demonstration in the industry's history that a barrel without a route to a buyer is worth less than nothing.

The year sorted the industry by balance sheet. ExxonMobil cut its 2020 capital budget from a planned ~$33 billion to ~$21 billion, took about $20 billion of after-tax impairments, mostly on North American gas assets, was removed from the Dow Jones Industrial Average with effect from 31 August, and reported its first annual loss in modern history, about $22 billion (company, reported). It borrowed about $20 billion more to keep paying a dividend of ~$15 billion a year. Pioneer Natural Resources and Parsley Energy asked the Texas Railroad Commission to impose statewide production limits for the first time in decades; the commission declined in May (reported). Chesapeake Energy, the company that had led the shale gas boom, filed for Chapter 11 on 28 June 2020 (Chapter 18). Saudi Aramco, whose oil costs a few dollars a barrel to lift, kept paying its $75 billion base dividend. Two years later, in 2022, the same companies reported record profits: ExxonMobil ~$55.7 billion and Aramco ~$161 billion, the largest annual profit any listed company has reported (company).