The global natural gas and oil industry, already reeling from a lack of demand and low commodity prices, is now taking a hit on the conference schedule because of the spreading coronavirus, with IHS Markit announcing Sunday it is canceling CERAWeek, the premier energy conference that draws thousands to Houston every year.
More than 5,500 gas and oil executives from 80 countries were scheduled to begin arriving in the energy capital for the week-long conference that was to begin next Monday (March 9).
The decision to cancel came after the World Health Organization last Friday raised the threat level from the virus, officially Covid-19, “and there is growing concern about large conferences with people coming from different parts of the world,” CERAWeek sponsors said.
The “No. 1 concern is the health and safety of delegates and speakers, our partners, our colleagues and vendors...We have made this decision reluctantly and after deep consideration.”
Houston has played host to the event for more than 35 years, said Mayor Sylvester Turner and CERAWeek Chair Daniel Yergin in a joint statement.
“Nothing specific to Houston led to this decision. The city of Houston reports that there are currently zero confirmed cases of Covid-19 in the city. The focus of concern was the number of delegates coming to Houston from more than 80 other countries at this particular time of uncertainty.”
Said Evercore ISI analyst James West on Monday, “So if January was all about the tension between the U.S. and Iran, and February was all about coronavirus, then I don’t even want to know what’s in store this March…”
West Texas Intermediate was trading under $47/bbl, which West said “is a dangerous place to be” for North American-leveraged oilfield services providers as it’s the average price where most exploration and production (E&P) companies planned to reduce their budgets.
“We haven’t seen any lockstep change in E&P behavior due to the virus just yet, but a few anecdotal data points from earnings last week could be a sign that further negative estimate revisions are on the horizon,” West said.
The Evercore 2020 E&P upstream spending survey found operators budgeting at $58/bbl Brent.
Analysts now await action by the Organization of the Petroleum Exporting Countries (OPEC), which is set to meet this week.
“Just as much as the general market is hoping for central banks to cut interest rates, a number of energy observers are hoping for an OPEC meeting this week to generate more reductions to crude production,” West said. “We wouldn’t rule that out but also realize that with Russia’s recently disclosed crude breakeven price of sub-$50/bbl, they could just let this be the knockout blow for U.S. shale. Act accordingly.”
Global economic growth could be cut in half if the coronavirus were to spread even more widely, according to a report Monday by the Organization for Economic Cooperation and Development (OECD). A spread of the virus could put even more pressure on a cash-constrained oil and natural gas industry.
The OECD provided a pessimistic view for gross domestic product (GDP) if there is no quick containment.
The U.S. GDP grew by an estimated 2.3% in 2019 year/year, OECD noted. Interim projections for 2020 forecast U.S. GDP to grow by 1.9%, down by 0.1% from a November projection. Aggregate world GDP, which climbed by 2.9% last year, now is forecast to increase by 2.4% in 2020, down 0.5% from the November outlook.
“The adverse consequences” of Covid-19 “for other countries are significant, including the direct disruption to global supply chains, weaker final demand for imported goods and services, and the wider regional declines in international tourism and business travel,” OECD researchers said.
“Risk aversion has increased in financial markets, with the U.S. 10-year interest rate falling to a record low and equity prices declining sharply, commodity prices have dropped, and business and consumer confidence have turned down.”
The global economy is “substantially more interconnected” today than during the outbreak in 2003 of SARS, the severe acute respiratory syndrome that also struck in Asia. China “plays a far greater role in global output, trade, tourism and commodity markets,” researchers said. “Even if the peak of the outbreak proves short-lived, with a gradual recovery in output and demand over the next few months, it will still exert a substantial drag on global growth in 2020.”
The U.S.-China trade war already was hammering supply and demand before the virus outbreak, OECD noted, “even though survey indicators had begun to stabilize or improve in both manufacturing and services…
“Preliminary estimates suggest that global GDP growth slowed further in the fourth quarter of 2019, to just over 2.5%, with strikes, social unrest and natural disasters affecting activity in a number of countries.”
Prospects for Chinese growth were revised sharply by the OECD, with growth slipping below 5% this year before recovering to more than 6% in 2021.
“The adverse impact on confidence, financial markets, the travel sector and disruption to supply chains contributes to the downward revisions in all G20, i.e. Group of 20, economies in 2020, particularly ones strongly interconnected to China, such as Japan, Korea and Australia.”
If there were to be a “longer lasting and more intensive coronavirus outbreak” that spreads widely throughout the Asia Pacific region, Europe and North America, global growth could drop to 1.5% in 2020, according to the OECD, one-half the rate projected before the virus outbreak.