The thousands of attendees seeking causes of optimism didn’t find them at the annual International Petroleum Week. Instead they were greeted with a cacophony of voices from some of the largest oil producers, refiners and traders delivering exactly the same message:
There are few reasons for optimism. The planet is awash with oil. The marketplace is overwhelmingly bearish.
No Hope
Producers are bracing for a tough year. Prices will stay low for approximately a decade as Chinese economic growth slows and also the U.S. shale industry provides 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 better than expected, are visiting a worsening outlook.
The surplus is so 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 that the surplus is really extreme that individuals will soon be filling pools with crude.
As the world runs out of places to keep oil, “I wouldn’t be surprised if this market goes into the teens,” said Jeff Currie, head of commodities research at Goldman Sachs Group Inc.
Cuts? What Cuts?
Crude prices surged briefly recently on speculation the Organization of Petroleum Exporting Countries would team up with Russia to chop production. The top from the nation’s biggest oil company had other ideas.
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“Let me know who is 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?”
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Supply exceeds demand by as much as 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 said.
Cuts around the scale required to balance the market just aren’t happening. Although some fields have started to fall victim to low prices, only 0.1 per cent of worldwide output has been curtailed because it’s unprofitable, researcher Wood Mackenzie estimates.
A Profitable Opportunity
Traders would be the only ones experiencing the slump as they profit from sky-high volatility and a market structure called contango – where prices in the future are higher than today – which means they can make money just by keeping oil in storage tanks.
As the price 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 drained in some places, and the contango gets so steep that it’s becoming profitable to employ 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 the industry, that wasn’t obvious from the cocktail party circuit. Kuwait Petroleum Corp. welcomed guests to ballroom from the Four Seasons hotel in London’s exclusive Mayfair district with hospitality as if nothing had changed since 2014, when oil was US$100 a barrel. Tables were laden with shashlik, oysters or even a whole lamb carved by a chef. Within the dessert room, a chocolate fountain bubbled alongside bowls of strawberries.
The State Oil Co. of the Azerbaijan Republic – in which a currency crisis has provoked street protests – offered four whole roast lambs, a sushi bar and chocolate truffles to thousands of guests at Park Lane’s Grosvenor House Hotel.
“We didn’t cut back,” said Elshad Nassirov, the company’s vice-president of promoting and investments, “so as not to spoil the atmosphere.”
#letsgo #socar #event #ipweek #london ??
A photo posted by PH (@phachuel) on Feb 10, 2016 at 4:22am PST
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