WoodMac tips oil market surplus in 2018 and 2019

Wood Mackenzie’s chief economist said a sustained Brent price of $70 was not justified by fundamentals. (Reuters)
Updated 01 February 2018
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WoodMac tips oil market surplus in 2018 and 2019

LONDON: The oil market is expecting to see a surplus this year, as growth in US crude production hits around 1.7 million barrels per day (bpd), a leading energy analyst told a London conference.
Ed Rawle, chief economist at Wood Mackenzie, the global energy consultancy, told a Chatham House forum he was expecting a significant increase in US output — including natural gas liquids — this year, up from a 650,000 bpd increase in 2017.
He was speaking shortly before the US Energy Information Administration (EIA) disclosed that America’s oil production was at its highest since 1970, thanks to the shale revolution centered on the Permian basin in Texas and New Mexico.
US output was running at just under 10.04 million barrels per day last November, fractionally below the previous record set in November 1970, said the EIA.
In the past Saudi Arabia has produced 10.6 million barrels a day, but has cut production following an OPEC deal with Russia and others in an effort to stabilize oil prices.
But Rawle questioned how easy it would be to bring the market back into balance.
“If you add in growth from Canada and Brazil, you are looking at a market in surplus in 2018,” he said. “And the story worsens in 2019 if you don’t have continued production restraint from OPEC and non-OPEC producers.”
Speaking at a forum on energy outlook for the Middle East and North Africa, Rawle also said a sustained Brent price of $70 was not justified by fundamentals.
“The story gets more complex around US stocks. US stocks fell aggressively through the second half of last year and we expect further stock draw in the first half of this year. A lot of the US stock draw down is the result of high refining runs, which, coupled with US exports of crude, offsets the surge in US production we see,” said Rawle.
But with a 40 percent fall-off in capital investment in oil and gas around the world since the price crash, the question is whether the US can continue to increase production into the 2020s to help offset declines from conventional production and to meet growth in oil demand.
“If not, we could be looking at a situation where the world is seriously under-supplied ... and that would lead to an extended period of high prices. This is something OPEC is keen to avoid — it would accelerate demand destruction, especially in the OECD, and, specifically, could accelerate the take-up of electric vehicles,” Rawle said.
“Second, it could incentivize a wave of conventional projects to be sanctioned — which will then compete with OPEC supply into the mid-to-late 2020s,” he said.
Speaking at the same conference, International Energy Agency analyst Ali Al-Saffar said the agency didn’t see demand for oil peaking in the next 25 years.
Under the IEA’s base scenario, the number of electric vehicles on the road would hit 300 million by 2040, he said. “But that would reduce oil production only by 2 million barrels per day,” he said. “Not a game changer on it own.”
Energy efficiency, such as the production of more lightweight motor vehicles, would knock oil production by about 12 million barrels per day, while a switch from oil to natural gas would affect 5 million barrels per day.
On the demand side, this could increase from sectors such as aviation, petrochemicals, international shipping and freight — particularly trucks used in the Far East.
Al-Saffar said: “In our business-as-usual model, many producers can behave in much the same way as they have been acting to date.
“The oil price is relatively high. Consumption is quite robust, so this is not a world that is unrecognizable. This is not a world that is consistent with the climate objectives of Paris,” he said.


In nod to debt concerns, China Belt and Road summit to urge sustainable financing

Updated 21 April 2019
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In nod to debt concerns, China Belt and Road summit to urge sustainable financing

  • The Belt and Road Initiative envisions rebuilding the old Silk Road to connect China with Asia, Europe and beyond
  • But the initiative has proved controversial in many Western capitals, particularly Washington

SHANGHAI: World leaders meeting in Beijing this week for a summit on China’s Belt and Road initiative will agree to project financing that respects global debt goals and promotes green growth, according to a draft communique seen by Reuters.
The Belt and Road Initiative is a key policy of President Xi Jinping and envisions rebuilding the old Silk Road to connect China with Asia, Europe and beyond with massive infrastructure spending.
But it has proved controversial in many Western capitals, particularly Washington, which views it as merely a means to spread Chinese influence abroad and saddle countries with unsustainable debt through nontransparent projects.
The United States has been particularly critical of Italy’s decision to sign up to the plan last month, the first for a G7 nation.
In an apparent nod to these concerns, the communique reiterates promises reached at the last summit in 2017 for sustainable financing — but adds a line on debt, which was not included the last time.
“We support collaboration among national and international financial institutions to provide diversified and sustainable financial supports for projects,” the draft communique reads.
“We encourage local currency financing, mutual establishment of financial institutions, and a greater role of development finance in line with respective national priorities, laws, regulations and international commitments, and the agreed principles by the UNGA on debt sustainability,” it added, referring to the United Nations General Assembly.
The word “green” appears in the draft seven times. It was not mentioned once in the summit communique from two years ago.
“We underline the importance of promoting green development,” the draft reads. “We encourage the development of green finance including the issuance of green bonds as well as development of green technology.”
The Chinese government’s top diplomat, Wang Yi, said on Friday that the Belt and Road project is not a “geopolitical tool” or a debt crisis for participating nations, but Beijing welcomes constructive suggestions on how to address concerns over the initiative.
A total of 37 foreign leaders are due to attend the April 25-27 summit, though the United States is only sending lower-level representatives, reflecting its unease over the scheme.
The number of foreign leaders at the April 25-27 summit is up from 29 last time, mainly from China’s closest allies like Pakistan and Russia but also Italy, Switzerland and Austria.
China has repeatedly said Belt and Road is for the benefit of the whole world, and that it is committed to upholding globally accepted norms in ensuring projects are transparent and win-win for all parties.
“We emphasize the importance of the rule of law and equal opportunities for all,” the draft reads.