“Lower for Longer” isn't Present in CERAWeek 2018!

CERAWeek 2018, the annual international energy, oil and gas conference, will be held from March 5 - 9 in Houston, Texas. It’s too early to tell exactly what theme will emerge from the event, but past years have produced some disheartening negativity, with a tone out of step from reality. Will CERAWeek really take on global energy market challenges ...? Or will continue its wave of negativism this year?!

It may be recalled that CERAWeek 2016 addressed market challenges in a bearish manner with oil prices plummeting to $30/bbl - almost 70 percent down from 2014 levels. Such negativism promoted the concept that crude oil markets were in turmoil. This led to the adoption of the "Lower for Longer" mantra about oil prices - leading to further depression that prices might even reach $15/bbl.    

CERAWeek 2017, when oil prices were around $55/bbl, didn’t put forward such negativism. However, some speakers did exacerbate the impact of strong supply growth, led by US shale oil outpacing demand. Hence oil prices fell by around $5/bbl below $50/bbl, halting the upward tendency in the market. CERAWeek 2017 could have addressed US supply growth to offset the upcoming supply crunch due to lack of upstream investments, but of course, that didn’t happen. 

Oil prices recovered after reaching a 10-week low below $62/bbl in mid-February, on the back of the broader equity markets drop and seasonally weak crude oil demand after the refineries’ maintenance season. Therefore, a strong rebound in crude runs is expected, which should draw down inventories further. The market is still waiting for refinery maintenance to finish in April to start becoming bullish again. 

For the closing week of February 23, 2018, Brent oil price rose to $67.31/bbl, and Nymex rose to $63.55/bbl. The Brent/WTI spread widened to $3.76/bbl. Yet surprisingly, US exports surged to about two million barrels a day. This illustrates stronger demand and draws on inventories.

* CERAWeek 2018 should emphasize that a shale oil surge can’t neutralize OPEC/non-OPEC production cuts without orchestrating challenges!

* CERAWeek 2018 should address the fact that oil demand is still robust while geopolitical risks threaten supplies and OECD inventory overhang is mostly gone!

* CERAWeek 2018 should address the strong market fundamentals while emphasizing high output cut compliance and a globally roaring economy. Oil supply and demand are in a tight balancing act while inventories are being drawn down.

Will any of this happen? Or will CERAWeek 2018 focus on the debatable peak oil demand theory utilizing the growing pressures to decarbonize the transportation sector?!

Dr. Faisal Mrza

@faisalmrza

Energy and Oil Marketing Adviser

(Former OPEC / Saudi Aramco)