- Shell’s accounts were affected, especially in the second quarter of last year, from the decline in the value of assets
- The epidemic damaged the oil market and forced major companies to adapt to lower prices.
- The slowdown in China, the second-largest producer of oil, could hurt the demand for Shell oil.
The giant oil group Royal Dutch Shell announced a large net loss of $21.7 billion in 2020 due to lower energy prices and the massive decline in demand for it due to the Coronavirus epidemic. The Dutch-British group said in a statement that it made a net profit of $15.8 billion in 2019, before the start of the health crisis.
“This week’s huge losses by Shell, BP, and Exxon reflect the challenges oil and gas companies face,” said David Elmes, professor of practice and head of the Global Energy Research Network at Warwick Business School.
“They are skating on ever-thinning ice as the effects of climate change combine with other events like the Covid-19 pandemic. There will be some ongoing need for oil and gas as a fuel for a while yet. There will also be demand for the petrochemicals and other products made from them. But that can’t sustain the industry we’ve seen in the past as we look to address climate change.”
After the first quarantine measures were imposed in the spring, oil prices fell to an all-time low, and even briefly in early April. However, it improved recently and reached about $50 a barrel, although it remains below the level it reached in early 2020.
Shell’s accounts were affected, especially in the second quarter of last year, from the decline in the value of assets, reflecting the market situation, which caused a loss of $18 billion. It resumed recording profits in the third quarter but returned in the fourth quarter to record losses of $4 billion at the time.
The epidemic damaged the oil market and forced major companies to adapt to lower prices. Shell’s annual loss is greater than that disclosed by BP on Tuesday, amounting to $20.3 billion.
Seeing that Royal Dutch Shell was reaping the benefits of its massive oil spill last April, some observers expected a major crash of prices. Not surprisingly, oil demand reached a three-year high.
Oil is priced in a futures market, where the price rises and falls in response to global supply and demand. According to the reports, Royal Dutch Shell is already seeing its stocks take a hit.
In response, the company is considering increasing the number of rigs it has, something that could further dent demand.
According to a snapshot of the current situation, seen by BP’s quarterly earnings report, there are only three major areas where demand is growing: in Europe, Asia, and North America.
A closer look at the picture of Royal Dutch Shell reveals a much different picture. Shell was the world’s top oil company last year. However, it seems that the slowdown in China, the second-largest producer of oil, could hurt the demand for Shell oil.
While China’s economy has slowed significantly in the past few years, the country still consumes a large amount of oil. At the same time, the demand for oil is increasing.
On top of these two factors, oil producers around the world are facing increasing pressure from suppliers to reduce output, especially while supplies are also being depleted. This in turn will further affect oil prices worldwide. If these pressures are not managed properly, then the spot price for oil could increase.