Global economy in deep recession in 2020 with the historically largest and sharpest decline in energy and oil demand
2020 was defined by the COVID-19 pandemic, as it disrupted international economic activity, with the growth rate of the global economy slowing at the lowest levels post the WW2 crisis estimated at -4.3% compared to last year (2.3% in 2019), amid weakening activity in services, transport and investment. GDP in advanced economies is estimated at -5.4% from 1.6% and in emerging economies from 3.6% in 2019 to -2.6% in 2020.
In the Euro Area, economic activity deteriorated significantly. GDP contracted unprecedentedly by an estimated -7.4%, compared to 1.3% growth in 2019 and 1.9% in 2018. Several services sectors vital to the area’s economy—tourism in particular—remain depressed and are unlikely to recover until the effective management of the pandemic. Despite the deterioration of the macro environment, manufacturing has continued to recover, supported by strengthening international demand. Additionally, the recently announced Brexit deal between the United Kingdom and the European Union is likely to contribute to a further decline in trade uncertainty.
In the U.S., economic activity is estimated to have contracted by 3.6% in 2020, versus 2.2% last year. Policy uncertainty has weighed on investment and confidence with the lingering trade disputes with China also affected exports. Substantial fiscal support to household incomes— far exceeding similar measures during the previous global financial crises-, contributed to an initial rebound in the 3Q20, which subsequently subsided due to a broad resurgence of the pandemic.
With regard to emerging economies, growth in China, decelerated to an estimated 2.0% in 2020 (vs 6.1% in 2019) —the slowest pace since 1976-, helped by the effective control of the pandemic and public investment-led stimulus. The recovery has been solid but uneven, with consumer services and a lagged rebound in exports, trailing industrial production. In Turkey, the economy avoided a contraction in 2020, with activity growing an estimated 0.5% in 2020 vs 0.9% in 2019, amid a substantial expansion in credit, the devaluation of lira, weak international tourism and tight monetary policy.
In 2020, the EURO/USD exchange rate was on average 1.14 versus 1.12 in 2019. Uncertainty from the COVID-19 pandemic crisis increased volatility in currency markets. The main drivers for the Euro's strengthening were the monetary and fiscal policy in the US and the Eurozone.
2 Sources: ΟPEC, “Monthly Oil Market Report”, January 2021 / IEA, Oil Market Report: December 2020 / EIA, Short-Term Energy Outlook, January 2021
World oil demand is estimated to have contracted by 9.8 mbd y-o-y in 2020 to 90.0 mbd. In 2021, world oil demand is forecast to increase by 5.9 mbd, to total 95.9 mbd, mainly from non- OECD countries. Demand in Europe declined by 1.95 mbd and in North America declined by 2.25 mbd, affected in both regions by the COVID-19 pandemic with a decline in automotive and aviation fuels and economic activity slowdown. Demand in Asian OECD was lower by 0.74 mbd affected by significant y-o-y declines, especially jet fuel and light distillates.
Global oil supply in 2020 declined by 6.4 mbd compared to 2019. OPEC crude oil production in 2020 declined by 3.7 mbd compared to a year earlier, the lowest annual average for OPEC since 2002. Non-OPEC supply declined by 2.7 mbd, with more than 90% of this decline come from the three largest non-OPEC producers: the US, Russia, and Canada.
The OPEC+ production cuts in April 2020 (extended in June), reversed the inventory builds that resulted from the historic demand declines during the 2Q20. OPEC members’ high compliance levels to the production cut agreement contributed to the decline in inventories. On January 5, 2021, OPEC+ announced modest production increases. Saudi Arabia announced that it would voluntarily cut production by an additional 1.0 mbd during February and March, resulting in lower overall OPEC+ forecast production in the 1Q21.
Brent crude oil averaged $41.8/bbl in 2020, down 35% vs 2019. The COVID-19 pandemic had a significant negative effect on oil prices with Brent prices reaching $13/bbl in mid-April. Despite the productions cuts, the lockdown-induced economic recession has resulted in the sharpest downturn in energy and oil demand in history, with oil markets plummeting and Brent halving as the crisis unfolded. The summer holiday period, along with the ease of lockdowns in the 3Q20 and the perspectives improvement due to the start of vaccination programmes in 4Q20, led Brent prices to rise over $50/bbl at the end of the year.
In terms of crude oil differentials, the Brent-WTI averaged $2.1/bbl in FY20, significantly lower vs 2019 due to the pandemic implications and the decline in US supply. Brent-Urals spread in 2020 increased by $0.3/bbl, maintaining almost parity with Brent due to the reduction in the supply of high sulfur crude grades, in the context of production reduction by OPEC++ countries.
Benchmark margins for Mediterranean refineries were significantly weaker in 2020, at historical low for cracking and the lowest levels for hydroskimming in the last 9 years with key driver being the very weak product demand. Med benchmark cracking margin averaged $-0.2/bbl in 2020, $1.9/bbl lower y-o-y with the Med Benchmark Hydroskimming margin $-0.6/bbl, reduced by $0.9/bbl compared to 2019. In 2H20 refining margins were at negative levels on the back of very low product cracks and the Brent-Urals differential.3 Source: Reuters, January 2020
Gasoline and diesel cracks were lower vs 2019, while naphtha and HSFO increased. The gasoline crack at $3.9/bbl in 2020 ($7.1/bbl FY19) and diesel crack at $6.8/bbl in 2020 ($14.4/ bbl FY19), both decreased sharply by 45% and 53% respectively. The HSFO crack averaged at $-7.8/bbl in 2020 vs $-13/bbl in 2019 and naphtha averaged at $-4.6/bbl vs $-10.2/bbl in 2019. The key factor that drove naphtha’s increase was petrochemical demand. Regarding HSFO’s strengthened performance, bunker fuel demand has not been as hardly hit as auto and jet fuel demand during the pandemic and the significant OPEC+ cuts tightened its supply further.4 Based on Brent prices
5 ING, A slow grind higher for refined products, December 2020
2020 was mainly affected by COVID-19, as it disrupted the economies at a global level and weighed heavily on many activities. In Greece, many businesses temporarily closed and tourist receipts dropped sharply, resulting in a sizeable output contraction as shown by an estimated -9.5% decline in GDP (vs 1.9% in 2019).
Greece’s domestic consumer and services activity rebounded after restrictions were lifted in May and June. However, tourist arrivals were exceptionally weak through the summer season. This has weighed heavily on demand, turnover, employment and exports. In the 3Q20, accommodation and food service sectors' turnover was 50% lower y-o-y. This has reduced domestic demand, contributing to a notable turnover drop in industry and wholesale and retail trade. Weak demand also weighed heavily on employment, although support measures limited job losses.
The yield on Greece’s benchmark bonds dropped to an all-time low, as support from the ECB and the EU mitigated investor concerns about Greek debt in the face of the coronavirus. Yields on the 10-year bonds fell as low as 0.88%, dropping below a previous low set in February, before the height of the pandemic crisis in Europe, since Greek debt has become eligible for ECB purchases.
Following the widespread resurgence of COVID-19 cases, since November 2020 Greece like most Euro area countries has been re-imposing restrictions.
Domestic fuel demand in 2020 amounted to 6.3m ΜΤ, according to preliminary official data, a 7.9% decrease compared to 2019, being marginally higher than 2019 only in the 2Q20 (+0.9%). Heating oil was the only product with a significant increase of 15.3% due to heavier weather conditions and the lockdown restrictions. Auto-fuels demand recorded a 13% decline, with diesel 9.4% and gasoline 16.7% lower, as a result of the mobility restrictions due to the COVID-19 pandemic.6 Sources: Hellenic Statistical Authority, February 2021
7 IOBE, 3 Months Report on Greek Economy, Issue 4ο/2020, January 2021
8 OECD Economic Outlook, Volume 2020, January 2021
9 EC, Economic forecast for Greece, https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economicperformance-country/greece/economic-forecast-greece_en
10 Bloomberg, Greek Bond Yields Fall to Record as Scars of Debt Crisis Fade, October 2020
A gradual recovery in economic activity and oil demand is expected in 2021
As mentioned, the COVID-19 pandemic has negatively impacted and continues to affect the international economic activity, oil industry and the capital markets. The decline in crude oil prices, the significant fall in refining margins as well as in demand from 2Q20, have affected the financial results of the Group.
According to initial estimates (OECD Interim Report, March 2021), annual global GDP is expected to recover by 5.6% in 2021, supported by the gradual development of effective vaccines, additional fiscal support in some countries and the improved countermeasures in dealing with the virus.
Advanced economies are expected to be affected by the impact of pandemic mitigation measures and public health policies. Eurozone’s GDP expected to be 3.6% higher, the United Kingdom’s by 5.1% and US GDP by 6.5%. The Chinese economy is estimated to grow by 7.8%. The world economy is projected to reach pre-pandemic levels by mid-2021, but this will depend on the course of vaccinations and any mutations in the virus.
The effects of the pandemic have also affected the Greek economy, with the IMF forecast in April 2021 for GDP growth for the year at 3.8%, with an additional recovery next year at 5%, based on impact estimates both domestically as well as in global economic activity.
In this environment, HELPE Group’s main priorities from the start of the pandemic have been the health and safety of its staff and contractors in its facilities, the smooth operation and supply of the market, as well as ensuring liquidity, so that it can both successfully overcome the current situation and also update its strategy and planning, considering developments and changes in the business environment.
The Group also immediately responded to the outbreak of the COVID-19 pandemic and since the end of February has taken various initiatives towards the pandemic.
Company is focusing on the health of its employees and the smooth operation of its activities, as well as the uninterrupted supply of our markets
These initiatives include:
- Adopting a timely and successful new remote working model (teleworking) where possible and modifying shift programs.
- Utilizing digital technology and upgrading teleworking infrastructures.
- Drafting a Policy with frequent revisions based on developments and instructions from the State, addressing how to prevent and manage issues arising from the COVID-19 pandemic, including detailed prevention guidelines and testing response under various scenarios, planning for and implementing procedures for handling any suspected COVID-19 cases.
- Continuously keeping employees up to date, along with ongoing health support (increase of its medical network, participation of an infectious disease specialist, psychological support line, regular publication of special newsletter).
- Conducting in total over 31,000 PCR and rapid tests on the Group’s employees in 2020 and 100,000 until April 2021.
- Regular disinfection in all workplaces and appropriate disposal of personal protection equipment (PPE).
- Supporting the Greek society and the National Health System by implementing a donation program amounting to €8 million.
In December 2020, the Group completed all the procedures for the certification "CoVid-Shield" by TÜV AUSTRIA Hellas, at Excellent level, for its facilities and offices, in all the countries in which it operates.
Also, throughout the EKO and BP gas stations network, information has been sent about the Group Policy, regarding the implementation of recommendations and precautions for the protection of customers and staff at gas stations and in addition, in company-operated petrol stations, continuous compliance checks are carried out.
All Group companies have set up Crisis Management Committees and issued protection or emergency plans, following the provisions of the Group's Policy.
In order to prevent the transmission of COVID-19, preparedness exercises are carried out at the refineries, head offices and marketing and distribution facilities; furthermore, individual protection measures are applied as well as stricter procedures for example during the contact of the port staff with ship crews.
The evolution of the pandemic, in Greece and globally, affected the financial results and statements for 2020, with the effects expected to continue, at least in 2021. During 2021, demand for petroleum products vs 2020, is anticipated to recover globally and also in our country, with an expected positive impact on the Group's results. In any case, it is not possible to estimate the impact in the future as well as the course of the recovery, as it is defined by drivers that the Group cannot influence, such as: international oil prices, benchmark refining margins, the euro/dollar exchange rate, domestic and regional demand, global evolution and effectiveness of the vaccination program, the impact of fiscal and monetary policy measures, etc.. Our competitive asset base, logistics infrastructure, strong operating performance and adequate financial liquidity are competitive advantages that will support the Group in managing the crisis.
The COVID-19 pandemic and the need for remote based working triggered an increased demand of remote access to information systems at levels that were unprecedented for the Group. This challenge was successfully addressed by investing in technology in order to allow remote access to the systems and providing a seamless tele-working experience. In parallel, a number of initiatives were performed for strengthening IT infrastructure and communications, increasing user awareness in the areas of cyber security and the optimal use of IT assets. The main measures performed are shown below:
- Implementation of Multifactor Authentication (MFA) in every aspect of remote access
- Installation of Encryption for all Laptops
- Implementation of Antimalware/Antispyware End Point Protection for all PCs and Laptops
- Continuous distribution of Security Awareness material and Remote Working Best Practices Quarterly Booklets
- Establishment of Security Awareness Platform for users to be informed about threats, risks and best practices of using IT assets