The a large number of attendees seeking causes of optimism didn’t find them at the annual International Petroleum Week. Instead these were greeted with a cacophony of voices from a few of the largest oil producers, refiners and traders delivering exactly the same message:
There are few causes of optimism. The world is full of oil. The market is overwhelmingly bearish.
No Hope
Producers are bracing for a tough year. Prices will remain low for up to a decade as Chinese economic growth slows and also the U.S. shale industry acts as a cap on any rally, based on Ian Taylor, ceo of Vitol Group, the world’s largest independent oil trader. Even refiners, whose profits have held up much better than expected, are visiting a worsening outlook.
The surplus is really extreme that people will quickly be filling pools with crude
“The oil market is facing an emergency,” said Patrick Pouyanne, CEO of Total SA, Europe’s biggest refiner. BP Plc boss Bob Dudley described himself as “very bearish” and joked the surplus is really extreme that individuals will soon be filling swimming pools with crude.
As the planet runs out of places to keep oil, “I wouldn’t be surprised if the market goes into the teens,” said Jeff Currie, head of commodities research at Goldman Sachs Group Inc.
Cuts? What Cuts?
Crude prices surged briefly last month on speculation the Organization of Petroleum Exporting Countries would team up with Russia to cut production. The head from the nation’s biggest oil company had other ideas.
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“Tell me who’s designed to cut?” said Igor Sechin, CEO of Rosneft. “Will Saudi Arabia cut production? Will Iran cut production? Will Mexico cut production? Will Brazil cut production? Who is going to chop?”
Very gloomy #oil view from @IEABirol: "Markets are full of oil" #ipweek #OPEC #SaudiArabia #Russia @IEA #Nigeria pic.twitter.com/Lxfn91IkDj
— Javier Blas (@JavierBlas2) February 9, 2016
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Supply exceeds demand up to 1.7 million barrels a day, so cutting A million from production would in theory make prices more “reasonable,” Sechin said. Nevertheless, Rosneft is centered on preserving its traditional markets against the competition, he explained.
Cuts on the scale required to balance the marketplace just aren’t happening. Although some fields have started to fall victim to low prices, only 0.1 percent of global output has been curtailed because it’s unprofitable, researcher Wood Mackenzie estimates.
A Profitable Opportunity
Traders are the only ones enjoying the slump as they make money from sky-high volatility and a market structure called contango – where prices in the future are higher than today – that means they can earn money just by keeping oil in storage tanks.
As the cost of U.S. benchmark West Texas Intermediate crude slumped close to 12-year lows now, another opportunity emerged: super-contango. Places to store oil on land are running out occasionally, and the contango is getting so steep that it’s becoming profitable to hire supertankers, fill all of them with crude and anchor them offshore.
Terrible Market, Great Party
Throughout the gloom, champagne flowed, backed by a jazz quartet.
If it’s crisis for that industry, that wasn’t obvious from the party circuit. Kuwait Petroleum Corp. welcomed guests to ballroom from the Four Seasons hotel in London’s exclusive Mayfair district with hospitality as though nothing had changed since 2014, when oil was US$100 a barrel. Tables were laden with shashlik, oysters and even a whole lamb carved with a chef. In the dessert room, a chocolate fountain bubbled alongside bowls of strawberries.
The State Oil Co. from the Azerbaijan Republic – in which a currency crisis has provoked street protests – offered four whole roast lambs, a sushi bar and chocolate truffles to a large number of guests at Park Lane’s Grosvenor House Hotel.
“We didn’t reduce,” said Elshad Nassirov, the company’s vice-president of promoting and investments, “so as not to spoil the mood.”
#letsgo #socar #event #ipweek #london ??
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