Business Outlook 2020 - Markets & Investments

BUSINESS OUTLOOK 2020

The Brent price has fallen by 55% in 2020 Business Outlook 2020 - Facts and Figures

Commodity Markets: Oil

1.6

2008-2011

2014-2018

100

1996-2000

1985-1995

1.4

90

2020

80

1.2

to $30/bbl – with a lack of equilibrium in the market

70

1

60

0.8

50

Business Outlook 2020 - Facts and Figures The Brent price has fallen by 55% in 2020

40

0.6

IndexedBrentPrice

30

0.4

The Coronavirus outbreak has reduced global oil demand

NominalDailyBrentPrice ($/bbl)

20

0.2

10

0

Strong domes�c oil and gas produc�on helps minimise the UK’s dependence on imports OPEC+ countries are planning to increase produc�on, adding to the supply and demand imbalance DRAFT v2 significantly and 2020 could see the first annual decline since 2009

0

2018

2019

2020

1

2

3

4

5

6

Year

Source:EIA

Source:EIA

Brent averaged $64.3 per barrel (bbl) last year and has seen a general downward trend since late 2019. Falling global demand as a result of the continued spread of Coronavirus (COVID-19) had lowered prices to around $50/bbl in late February. This marked decline in demand was then compounded by a significant increase in supply as constraints within OPEC+ countries were removed — leading Saudi Arabia and Russia, amongst others, to increase output. This ‘perfect storm’ in the market resulted in prices falling below $30/bbl on 16 March, a fall of over 55 per cent since the beginning of 2020 and the lowest price since early 2016. At the time of writing, it is unclear how long prices will remain at this level, given the uncertainty over the continued impact of Coronavirus on demand and the length of time OPEC+

countries are able to withstand low prices. Brent futures prices currently remain below $40/bbl for the majority of 2020 and below $45 in 2021, demonstrating the cautious outlook in the market. Whilst some past downturns have seen a relatively quick recovery, such as in 2008, others have resulted in a more prolonged period of low prices, such as from 1985 onwards. The US Energy Information Administration (EIA) now forecasts that Brent will average around $43/bbl this year — $18 lower than its previous estimate — with other banks and agencies outlining the potential for a lower annual average (potentially as low as $35/bbl). This price environment will cause significant cash flow and investment challenges for all areas of the UK industry, the full implications of which are still being considered. The Brent price has fallen by 55% in 2020 to $30/bbl – with a lack of equilibrium in the market

to $30/bbl – with a lack of equilibrium in the market

The Coronavirus outbreak has reduced global oil demand

significantly and 2020 could see the first annual decline since 2009

Strong domes�c oil and gas produc�on

There are more Domes�c produc�on was enough to meet 51%

51% gas

6