This article was first published on August 4, 2020.
As economies across Asia begin to recover from the impact of COVID-19, the effect on the economy across sectors will be felt over the long-term, and oil is no different. Over the next two to three years, Oliver Wyman estimates that there could be a decrease of up to twenty percent in the demand for oil products. Within this context, it is important to take into consideration how the pandemic and its associated demand disruption are playing out. And that is just the beginning, as there are also an array of other factors that will impact demand for the foreseeable future, such as the possibility of more stringent lockdowns being mandated and whether COVID-19 cases continue to spike in clusters until mass immunity is achieved.
For the long term, those companies that succeed will be those with an array of capabilities to help offset the loss in demand. Companies with a retail arm, for instance, are not locked into long term supply contracts in a world where there is an oversupply of oil. And with consumers making every attempt to stay safe during the pandemic, attitudes towards the ways in which they used to do everyday activities for changing. As a result, consumers are increasingly favoring private cars as opposed to mass transit to get around, making fuel retailers a vital source to help them get around. This offers an opportunity for retailers to sell ancillary goods right at the fuel station to consumers from the comfort—and safety—of their cars.
The changes happening today are only the start of several changes to come—for both the short and long term. Companies that prevail will innovate in a number of ways related to digital and technological innovation, however there are a number of questions to consider, among them how to finance such activities. Oliver Wyman has collaborated with DBS to provide an overview of the current state of the oil industry in Asia, the changes to come, and how players can succeed and weather the pandemic for the long term.