A pair of headlines Monday showed that not even the oil and gas industry could avoid market dislocations caused by the global COVID-10 pandemic.
The first – that BP was exiting the petrochemical business – was on one hand a reflection that BP decided to sell the business and concentrate on core operations rather than make further investments to make it more competitive. However, also driving the decision is the fact that oil prices have plummeted this year as demand for gasoline, diesel and jet fuel, and other products has collapsed as billions worldwide have heeded “shelter-in-place” orders. BP, faced with the prospect of falling revenues, opted to sell the business to pare down debt.
The second – the bankruptcy of Chesapeake Energy – showed that the once high-flying natural gas market was also buffeted by the pandemic. As with oil, natural gas prices have remained low during the pandemic as many users – manufacturers, public utilities, restaurants – have seen reductions in use as businesses closed or curtailed operations. Furthermore, banks and other lenders – pressed to lend money to thousands of businesses while also being mindful of the potential of revenue declines – were less willing to offer debt-laden Chesapeake credit, forcing the company to file for Chapter 11 protection.
Even as the US and global economy makes a partial recovery, it is expected that oil and gas prices – with demand for these products a fraction of what it once was – will remain depressed for the near future. Thus, it is expected that other industry participants may face similar pressures over the next few months.
For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including an expanding catalog of COVID-19 Economic Impact reports, which highlight how various industries are responding to the current crisis with a comparison to recent recessions. Freedonia Custom Research is also available for questions requiring tailored market intelligence.