Impact of price cut

Gainers- Losers-
Exporters
Importers Oil companies
 Manufacturing sectors Investors
 Transport sectors
• Continuation of around $20 a barrel for a while
would force 80% of independent oil companies
Some part could be passed on to the into bankruptcy
consumers • Even if at $30 a barrel, many companies would
be crippled, but at least the industry will survive
(according to Scott Sheffield, chief executive of
Pioneer Natural Resources)
Strategies taken so far
• Global oil supply reduction: 12 mbpd (effective from May 1)
• OPEC+ production cut: 9.7 mbpd
• Additional cut: from non-OPEC countries, largest declines with US and
Canada

3 steps cut by OPEC+ countries: America:

2.3 mbpd cut at the end of 2020
-9.7 mbpd (May’20 – Jun’20)
-7.7 mbpd (Jul’20 – Dec’20)
-5.8 mbpd (Jan’21-Apr’22)
 How far it will work!
• Demand has fallen between 25-35 mbpd, 3.5 times of production cut
• Moreover, this production cut will cost roughly 10 million jobs directly or
indirectly
• This production cut will force political turbulence along with economic
difficulties
• Will jeopardize Saudi Arabia’s efforts to diversify its economy due to lot less
earning
• In USA, economies of states like Texas, Oklahoma, North Dakota and Alaska
will be depressed
• The big risk is how far OPEC countries will abide by this 23% production cut,
already Canada(non-OPEC) has stepped back on 5th May

The oil industry’s prospects will most likely be linked to how the pandemic
evolves — something few experts can predict with certainty
How far it will work! (continues…)
Even this production cut continues, it
won’t rebalance the market immediately
but help to absorb the worst of this crisis
by
lowering the peak of the supply overhang,
and
flattening the curve of the build-up in
stocks
Forecast of demand fall:
 year-on-year fall of 29 mb/d in April
 year-on-year fall of 26 mb/d in May
 year-on-year fall of 15 mb/d in June
But demand fall will not save
companies investment which will
require to continue to offset natural
production declines.
Exploration and production companies
global capital expenditure will drop by
32% in 2020
This reduction of financial resources
will undermine the ability of oil
industries’ technological development
needed for clean energy transitions
around the world
Will Bangladesh Be Gainer?
• BPC is tapping profit on downward oil prices
• But no effect on local markets to offset the previous loses

Furnace oil- Tk. 42 per liter

Diesel & Kerosene- Tk. 65 per liter as previous
Octane & Petrol- Tk. 86 per liter
Will Bangladesh Be Gainer? (continues…)
Market assumption: no longer this superfluous profit will exist

Law of price with demand & supply:

Lower demand Lower supply Higher price
Already oil price jumped up 20% on 5th May
Future contract for
-June delivery rose to $24.56 a barrel, 20% jump from existing $20
-July delivery rose to $26.49
-May 2021 delivery to $35, though a little longer to turn back that high
Strategies BD can take:
(According to a petroleum geologists)

Proposal 1:
The Sangu platform, abandoned gas field which is connecting 10-12
wells with 3,500 metres depth each, is also connected with a 20-22
kilometres long production pipeline to the Chattogram port
could be used as storage tanks for the imported crude oil
later be transported to Chattogram oil refineries for processing, result
into reduced carrying cost by saving time, also facilitate quick unloading
without additional port arrangements
BD’s strategy (continues…)
Proposal 2:
The government can install a floating refinery close to the Sangu
platform
refined oil can then be distributed through riverways to different river
ports inside the country
It may reduce domestic carrying costs and will ensure quality of
products as well
BD’s strategy (continues…)
Proposal 3:
All the abandoned gas wells can also be used as reservoirs of diesel or
unrefined crude oil following the procedures mentioned in proposal 1 & 2

Also Bangladesh can purchase and reserve a huge volume of refined or

unrefined oil for further use and thus save foreign currencies at this critical
moment