It’s the biggest week on the social calendar for folks in the oil industry.
In late February, London hosts a week of conferences and cocktail parties, drawing thousands from around the world.
But far fewer made the journey this year, as the coronavirus outbreak forced many to stay home instead.
Shortly before the event, organizers cancelled some receptions, though plenty of action did take place.
A team from Ursa was there again. Here’s a recap from last year when the prospect of a pandemic was the furthest thing from anyone’s mind.
The biggest topic of conversation at this year’s edition was the coronavirus.
At one panel discussion, the audience was asked what story will have the biggest impact on oil prices. Some 63% respondents said (you guessed it) coronavirus.
Commodity prices have already fallen sharply, as the gears of the global economy slow. As of Feb 27, Brent crude futures were down 13% on the week, which would rank as the biggest weekly decline in four years.
Here’s a sample of some of the other things we heard at two big events: S&P Global Platts London Oil & Energy Forum and the Argus Crude and Refined Products Forum.
Coronavirus hurts oil demand
Oil demand loss because of the coronavirus is likely to peak in February at 3.5 million barrels per day (bpd), and then recover sharply.
Oil demand is projected to grow at 860,000 bpd in 2020. That’s down from a forecast last month of 1.3 million bpd growth.
London (Feb 25, 2020)
Coronavirus isn’t the only thing having a negative impact on oil demand. The mild winter in Europe has resulted in fewer heating days.
2020 will be a year in which the economic recovery is delayed, not derailed.
Shandong refiners
Refineries in Shandong Province were among the first to cut runs, many have also scheduled maintenance. Though we’ve seen refinery utilization start to creep up.
As refineries slash imports, we should see crude inventories rising in the Atlantic Basin. It’s possible the market isn’t yet pricing in this massive overhang.
Supply buffer
The market has been sanguine in response to supply losses because you have the potential return of supply from Iran and Venezuela, OPEC spare capacity and the strategic petroleum reserves of various countries acting as a buffer against geopolitical tension.
Global oil supply continues to grow even though OPEC continued to limit production and US growth declines. The reason is sources outside OPEC and US shale, including Guyana, Brazil and Norway.
Energy transition
Financial institutions are backing away from fossil fuels, and flaring makes the Permian the most energy intensive play in the world.
With 70% of millennials concerned about global warming, these shifting voter demographics will impact policies.
The average age of coal plants in Asia is 11 years, while in the US and Europe the average age is 45 years old. Why would Asia retire these relatively new coal plants?
Passive investment funds are screening energy from passive funds. The next step will be for more sophisticated investors to tease out the different technologies.
OPEC politics
Saudi Arabia would like OPEC and its non-OPEC allies to make further production cuts, but Russia has yet to support the deal. There is an expectation Russia will come onboard eventually.
Behind closed doors, there is frustration between Russia and Saudi Arabia. The partnership will endure as long as there’s a high-level strategic reason for cooperation.
London (Feb 25, 2020)
Venezuela
Venezuela’s production has stabilized after being in a death spiral, but it may be short-lived. The US imposed new sanctions on Russian oil company, Rosneft, for helping Venezuela. The US will also pressure India, one of Venezuela’s biggest customers, to stop buying.
US shale growth eases
The US is on track to becoming the world’s largest oil exporter by the mid-2020s, beating Saudi Arabia.
We’re seeing a slight slowdown in US production growth as companies become more prudent and there are natural declines in well productivity.
You have to drill more to replace the barrels you’re losing, but drilling is expensive. There’s been a wave of bankruptcies, but not as bad as 2015 when lots of shale producers went bust.
About one-half of shale production is challenged by today’s prices. If oil prices stay in the high-40s, low-50s, then you’ll see further consolidation in the sector.
