WEEKLY ENERGY RECAP: IEA pursues negative narrative

Oil prices retreated after the International Energy Agency said there is an abundance of oil in the market in 2020 while oil demand growth is likely to remain weak. (AFP)
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Updated 12 January 2020

WEEKLY ENERGY RECAP: IEA pursues negative narrative

  • The previous week’s price rise was of course caused by heightened tensions with Iran

The International Energy Agency (IEA) began 2020 by highlighting the challenges facing the oil market in 2020 while ignoring its strong fundamentals. 

While pursuing this negative narrative it glossed over many important questions such as whether US shale producers plan to increase their production amid the current drawback in drilling rigs.

Brent crude fell sharply to $64.98 over the week while WTI retreated below the $60 barrier for the first time in a month to $59.04 per barrel. The Brent/WTI spread widened slightly to $5.94 per barrel.

The previous week’s price rise was of course caused by heightened tensions with Iran. However the ensuing correction was not because of any de-escalation in tensions, or because of the surprise build in US inventories.

In fact, prices retreated after the IEA revealed that there is an abundance of oil in the market in 2020 while oil demand growth is likely to remain weak. This was enough to dampen oil prices by around $4 per barrel on a weekly basis.

Market participants are still wondering if the downward movement will continue next week, especially considering that the IEA expects demand growth to be just under 1 million barrels per day, with a forecast surplus of 1 million barrels per day of oil.

This is a clear message from the IEA to the market that upcoming ample supplies combined with weak global oil demand growth will cap oil prices in 2020.

We have seen such messages from the IEA at the beginning of previous years whenever the new year starts with an upward momentum in oil prices. OPEC oil output last month was about 29.55 million bpd, which reflects continued over-compliance with earlier announced production cuts.

Overall, OPEC’s compliance with its cuts was 158 percent for December, according to S&P Global Platts data.

Moreover, under the new quotas that went into force on Jan. 1, OPEC’s December production would result in 108 percent compliance.

Yet some outlooks persist in forecasting a supply glut through the first half of the year and say additional production restraint from OPEC and its partners may be needed to prevent an oil price slump.


Big oil feels the heat on climate as industry leader promises: ‘We will be different’

Updated 22 January 2020

Big oil feels the heat on climate as industry leader promises: ‘We will be different’

  • Trump singles out ‘prophets of doom’ for attack
  • Greenpeace told the Davos gathering that the world’s largest banks, funds and insurance companies had invested $1.4 trillion in fossil fuel companies since the Paris climate deal

LONDON: Teenage environmental activist Greta Thunberg slammed inaction over climate change as the global oil industry found itself under intense scrutiny on the opening day of the World Economic Forum in Davos.

The teenage campaigner went head to head with US President Donald Trump, who dismissed climate “prophets of doom” in his speech.
She in turn shrugged off the US president’s pledge to join the economic forum’s initiative to plant 1 trillion trees to help capture carbon dioxide.
“Planting trees is good, of course, but it’s nowhere near enough,” Thunberg said. “It cannot replace mitigation. We need to start listening to the science and treat this crisis with the importance it deserves,” the 17-year-old said.
The 50th meeting of the World Economic Forum was dominated by the global threat posed by climate change and the carbon economy.
The environmental focus of Davos 2020 caps a year when carbon emissions from fossil fuels hit a record high, and the devastating effects of bushfires in Australia and other climate disasters dominated the news.
Oil company executives from the Gulf and elsewhere are in the spotlight at this year’s Davos meeting as they come under increased pressure to demonstrate how they are reducing their carbon footprint.
“We are not only fighting for our industry’s life but fighting for people to understand the things that we are doing,” said Vicki Hollub, CEO of Occidental, the US-based oil giant with extensive oil operations in the Gulf. “As an industry when we could be different — we will be different.”

‘Planting trees is good, but nowhere near enough,’ activist Greta Thunberg told Davos. (Shutterstock)

She said the company was getting close to being able to sequester significant volumes of CO2 in the US Permian Basin, the heartland of the American shale oil industry which is increasingly in competition with the conventional oil producers of the Arabian Gulf.
“The Permian Basin has the capacity to store 150 gigatons of CO2. That would be 28 years of emissions in the US. That’s the prize for us and that’s the opportunity. People say if you’re sequestering in an oil reservoir then you are producing more oil, but the reality is that it takes more CO2 to inject into a reservoir than the barrel of oil that it makes come out,” Hollub said.
The challenge Occidental and other oil companies face is to make investors understand what is happening in this area of carbon sequesteration, she added.
The investment community at Davos is also looking hard at the oil industry in the face of mounting investor concerns.
Greenpeace told the Davos gathering that the world’s largest banks, funds and insurance companies had invested $1.4 trillion in fossil fuel companies since the Paris climate deal. It accused some of these groups of failing to live up to the World Economic Forum goal of “improving the state of the world.”