The impact of low crude oil price on the maritime industry (international oil companies)

Abstract

Oil is an important commodity that affects world economies. Given oil’s vital role in the economy, everyone prefers stable oil prices and abhors volatility. Oil prices have plummeted in 2020 and are predicted to remain low for a considerable period. Multiple factors have caused the oil price decline in 2020 – the demand destruction caused by Covid-19, an oversupply in the market, and a global recession. The crude oil market has met with a series of boom-bust cycles since 1970. Despite the frequent boom-bust cycles of oil, limited research was done concerning the political, social, legal and environmental impacts. Thus, the immediate objective of the paper is to assess the political, social, legal and environmental impacts of low crude oil prices on international oil companies. Additionally, this paper strives to contribute to existing literature, while also shedding light on the impacts from the short to long term. To meet the research objective, both primary and secondary data sources were collected to strengthen the study. Interviews conducted with key industry players are cross-referenced to secondary data sources. Upon examination of the results, the study identified the main impacts arising from the low crude oil price – political stability, CAPEX cuts, consolidation and higher efficiency, loss of jobs, technological innovation effort, strained contractual relationships, renewable activities, and clean energy transition. Despite the uncertainty arising from the low crude oil price, it provides an opportunity for repositioning and growth. For IOCs to reposition themselves for an uncertain and changing world, the author provides the following recommendations – (1) to re-examine infrastructure models, (2) to transform the workforce, (3) to advocate for a balanced dialogue, and lastly, (4) to reposition IOCs for growth. In conclusion, the recent plunge in crude oil price and bleak future outlook triggers a relook into the external environment of IOCs. This study hopes for international oil companies to be better prepared for short-term uncertainties and to seize growth opportunities.