Stabilizing oil prices may have made a London summit of the industry’s biggest hitters a quieter affair than usual. But on the sidelines, serious questions about the future were still being asked.
EVERY February in London, the Energy Institute hosts International Petroleum Week, or IP Week, giving the biggest names in the oil industry a chance to gather and discuss the future and current state of the oil market. The conference offers important insights into the way the oil market moves and how oil traders think, with the major companies holding receptions for traders, analysts, customers and the media, many on the sidelines of the forum itself.
This year’s IP Week, from Feb. 20-22, may not have had the big themes of previous years — when the oil market is stable, the trading community has less to worry about. Uncertainty in the market is what makes traders seek greater answers.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, which have been cutting daily oil production by almost 1.8 million barrels since January last year, have succeeded in bringing stability back to the market.
Therefore, all the unknowns are becoming known this year, and that is not good news for speculators and traders in the paper market of crude oil. Even the developments in shale oil production in North America are less worrying this year than previously, thanks to robust demand.
With only one OPEC minister, the UAE’s Suhail Al-Mazrouei, and almost none of the shale oil producers, discussions at this year’s IP Week were nothing out of the ordinary.
Many ministers were tied up with other commitments, and even the secretary-general of OPEC, Mohammed Barkindo, whose name was among the proposed speakers, was unable to attend because he was at another function in his home country Nigeria.
But that doesn’t mean there were not any serious points raised during the event or in the corridors of the Intercontinental Park Lane hotel.
Some participants, including officials from Vitol, the world’s largest oil-trading company, suggested the oil market was close to rebalancing or, indeed, may have rebalanced as inventories went back to their seasonal normal levels.
The UAE’s Al-Mazrouei, who is also OPEC’s president this year, tried to send many positive messages about the future of the cooperation between his organization and other producers, such as Russia, but he was less than precise on when the market will rebalance.
A day before the launch of the IP Week conference, the leading oil-pricing agency Platts held its London oil forum in the Hilton Park Lane hotel next door. Platts made some announcements on pricing of crude during the event that will increase transparency in the market.
The agency announced that it has begun publishing all cargo-loading date information for the five existing benchmark grades. Platts also said that from March 26 it will assess the value of 11 crudes on a delivered basis to North Asia.
What was more important, however, is the discussion Platts’ people led on the future of Brent as a benchmark.
Brent blend is the benchmark for pricing half the world’s crude oil, and its future is important to all traders and producers. At present, Brent is based on five British and Norwegian North Sea crudes — Brent itself, Forties, Oseberg, Ekofisk and Troll, or BFOE as they are known. They pump about 1 million barrels per day, almost 1 percent of world supply.
The problem with Brent blend is that the volumes are in decline due to the mature oil fields from which the five crudes that make up the blend originate. The steady decline in crude supply from the North Sea has led to concern that output could become too low and, hence, could be accumulated by only a few players, making the benchmark vulnerable to manipulation.
Last year during the Platts conference, the company announced that a new crude, Troll, would be added to the Brent family. Troll was added earlier this year. Although it is also a better-quality crude, Troll does not have a quality premium, but Platts said it is looking at adding one. This year the news is that oil from the new giant field Johan Sverdrup oilfield would be suitable for its North Sea basket, making it potentially a sixth crude underpinning the Brent benchmark that prices most of the world’s oil.
Statoil’s Johan Sverdrup is an offshore oilfield due to start pumping 440,000 barrels a day of oil in late 2019, with a target of more than 600,000 barrels in 2022. The oilfield is one of the five largest on the Norwegian continental shelf and holds up to 3.1 billion barrels of recoverable oil.
That is good news for the benchmark and may help it remain the leading oil price in the world for years to come. Yet the industry still faces many challenges — and many were addressed briefly at this year’s conference. But the key message from IP Week is that regardless of suggestions that oil will decline as a major fuel for the global transport sector, it still has a big role to play and demand will continue to be strong. It appears that the oil traders of the world will convene in London for years to come.
Wael Mahdi is an energy reporter specializing on OPEC and a co-author of “OPEC in a Shale Oil World: Where to Next?” He can be reached on Twitter @waelmahdi