The biggest oil producer in Brazil after Petrobras, Shell has claimed it will cut capital expenditures to $20 billion or less.

In an effort to cope with the recent collapse in oil costs, oil company Shell announced on Monday that it will reduce investments by 5 billion dollars and that it also stopped its broad plan to buy back shares worth 25 billion dollars. Petrobras asks banks to disburse US$8 billion to reinforce liquidity and face the oil crisis 

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As it seeks to lower operating prices by an additional $3 billion to $4 billion over the next 12 months, Brazil's biggest oil producer after Petrobras, Shell has claimed it will cut capital expenditures to $20 billion or less from a level of around 25 billion dollars over the next 12 months.

The cuts are expected to boost Shell's cash generation by between $8 billion and $9 billion before tax. Shell shares were down 3,5% in early London trading, versus 3% for European energy stocks.

In just two months, oil costs have plummeted due to the effect of the virus and pressure from Saudi Arabia to increase production after the collapse of an agreement between OPEC and its allies, known as OPEC+, to curb supply.

According to data from Bank of America Global Research, an increase in oil supply from the Organization of Petroleum Exporting Countries (OPEC) and other producers could strain world storage as the coronavirus dampened demand pushing costs below $20 a barrel.

The data also reports that world consumption could contract by more than 0,5 mbpd in the first half of 2020, with the situation possibly spreading in the second half if the virus outbreak is not contained. “4 million barrels per day of new OPEC+ supply could arrive in the next two months”.

That surplus can quickly fill the world's available storage capacity – and if land capacity is insufficient, supplemental floating storage will be needed, the bank said.

As oil inventories build, US oil contango – where costs for future delivery are more expensive than those for immediate shipping – could build up and make US crude more expensive than world benchmark Brent crude , added.

This could displace US shale production, “if shale drillers stopped completing wells today, it would take about 12 months for US supplies to drop by 4 mbpd,” Bank of America reported.