A demand shock occasioned by the coronavirus pandemic has sent crude prices cratering to under $30 a barrel. Oil stocks have consequently suffered. Year-to-date ExxonMobil (NYSE:XOM) has plunged over 40%.
Besides slashing operating costs and capital expenditure, ExxonMobil is turning to the production of key ingredients used in making hand sanitizers and personal protective equipment (PPE).
In a statement ExxonMobil said:
The company is maximizing production of products critical to the global response, including isopropyl alcohol, which is used to manufacture hand sanitizer, and polypropylene, which is used to make protective masks, gowns and wipes.
While being a welcome response to the coronavirus pandemic, the move will not arrest the decline in revenues for the oil giant.
The revenues that will be generated from supplying ingredients used in making hand sanitizers and PPE are simply not enough to make up for revenues lost from a drastic reduction in oil demand.
Energy and commodities company Vitol sees oil demand plummeting by up to 20 million barrels a day in April as consumption in the travel and manufacturing industries slows down. This is about a fifth of the world’s daily consumption.
Assuming proportional damage to all oil companies, this will be a significant loss to ExxonMobil amounting to billions of dollars. Last year the oil giant generated nearly $265 billion in revenues.
The hand sanitizer and PPE markets combined are tiny compared to oil. By some estimates the global hand sanitizer market is projected to reach around $2.14 billion by 2027. Another estimate expects it to reach a value of $5.5 billion by 2024.
The market for healthcare personal protective equipment is relatively tiny compared to that of oil. One estimate projects the market to be worth nearly $70 billion in 2024. Another estimate puts that figure at slightly over $75 billion by 2027.
Additionally, this high demand for hand sanitizers and PPE is not permanent, especially if a coronavirus vaccine is discovered. Other firms are also crowding the market, including brewers, distilleries and paint makers.
ExxonMobil’s shareholders have no cause for celebration in the near term, but the company’s fight against coronavirus could yield indirect benefits. If the world overcomes the coronavirus pandemic and economic activity returns, a revival in oil demand would ensue.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
Last modified: June 12, 2020 10:31 PM UTC