In a matter of weeks, the coronavirus pandemic all but evaporated global demand for oil, which is down about 30% this month, according to the International Energy Agency. The oil glut has sent the price of Brent crude, the international benchmark, down to 20-year lows. And when oil is that cheap, exploration and extraction become unprofitable.
While some states and cities are opening up after locking down to halt the spread of the coronavirus, no one knows exactly when demand will rebound. That's Van Beurden calls "the crisis of uncertainty." "We are looking at a major demand destruction," he told investors. "We don't even know that will come back. So the oil price may come back, but if the volumes are significantly lower, we still have a major dislocation."Shell doesn't expect a recovery in oil prices or demand even in the medium term, Van Beurden said. That's why the company — like every other major — has taken somewhat drastic measures to cut costs.
In late March, the company announced that it was shaving $5 billion off of its investment budget, in addition to a $3 billion to $4 billion cut from its operating budget. Capex and opex cuts are more or less to be expected in a downturn. The company's dividend cut is more surprising, as dividends are magnets for energy investors.
Read Economic Commentary at Hunker Down – Economies Will Struggle COVID
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