What the analysts are saying.
The oil and gas industry has always been highly prone to the highs and lows of economic cycles. When times are good, the energy industry can serve as a powerful business driver for electrical distributors that offer an industrial product mix. The oil & gas downturn caused by COVID-19, however, is unlike anything that industry experts have seen. With a grounded airline industry and a society of citizens anchored to their homes, energy companies are facing some potential longer-term reductions in petroleum demand. The next decade could look very different for the oil and gas market. That being said, here is a quick look ahead to how 2021 is expected to play out according to industry analysts.
Since midyear energy forecasts were published in July, the global economy and capital markets have rebounded at a faster than expected pace in Q3 of 2020. However, the pace of recovery in the coming months remains highly uncertain as mounting COVID-19 cases amid winter conditions in the U.S., are already triggering another round of shutdowns and restrictions. Any further normalization of economic activity largely depends on how the pandemic evolves during the winter and, most importantly, when COVID-19 vaccines ultimately reach the general public. Thankfully, this process is getting underway and the positivity that stems from this is beginning to impact the overall business outlook moving forward.
Even when the virus is controlled, U.S. oil & gas players are expected to continue dealing with the adverse impact of deteriorated fiscal balances and the effect of muted business conditions that have occurred over the last 10 months. Global oil demand fell by 25% in April, but it has rebounded sharply since then, cutting its losses to just 8%. Looking ahead, 2021 oil demand is expected to recover strongly but remain around 4% lower than it was at pre–COVID-19 levels. US O&G companies laid off about 14% of permanent employees in 2020, and industry analysts predict that 70% of jobs lost during the pandemic may not come back by the end of 2021. The writing on the wall here is that projects with higher lifting costs may continue to be shelved until technology and/or commodity pricing improves to levels that make these projects viable.
2021 will be the beginning of a gradual rebound where we’ll see domestic energy companies focus on efficiencies in operations and optimized capital spending. Industry analysts predict WTI crude prices to finish 2021 trending above where we end 2020 — albeit with a more stable floor with the pandemic in the rear-view mirror. A potential nugget of good news for electrical distributors is that oil & gas companies will increase their reliance on technology and innovation to help make up for losses of volume. These technology investments will likely depend on electrical goods and services that are sourced from distributors.