Global Commodities Report

Nicholas Newman Flame Amsterdam Blog 2017
Delegates at the Flame Amsterdam conference 2017

“We are beginning to see various fuels acting in a similar manner, irrespective if it is oil, gas or coal,” stated Chris Main – Energy Markets Strategist, Citigroup Global Markets.

Market trends used to indicate that the U.S. would become a net importer, whereas today it is becoming a net exporter, which could eventually make it a serious competitor to Middle East producers. For Asia, the long-term trend is as an energy importer.

As for oil specifically, withdrawals are helping to rebalance supply and demand, although blips in prices have little connection with real demand but rather are caused more by speculators. OPEC’s agreement to cut output in the hope of harming US shale has rebounded since an upturn in price, alongside cost cutting, greater efficiency and productive resources, has allowed a resurgence in American shale oil. Main advises Russia and OPEC to focus on maintaining market share rather than price “since for many producers production costs mean they can make a good profit even at $40 a barrel.”

Industry response: Geopolitics, Technology & the Gas Industry

“We are seeing an end- game for the fossil fuel companies,” attributable to the ongoing decline in oil prices, decarbonisation and the impact of digitalisation, announced Dieter Helm – Fellow, New College Oxford.

Oil is at the end of the current commodity super- cycle. Over the past century, oil prices have usually traded at less than $50 per barrel. Oil at over $100 a barrel has been the exception not the norm. Helm predicts a fall to $36 per barrel, as oil can be profitably produced at $10 a barrel in Saudi Arabia and Iraq.

Shale oil production has ushered in cheap oil and allowed the US to become a net exporter and replaced Saudi Arabia as a swing producer. For oil producers this means that the value of reserves are likely to decline rather than increase.

Oil is being replaced by gas in power generation, petrochemicals and transport. In the U.S. and Europe the petrochemical industry is replacing oil with ethane to make feedstocks. A case in point is Inneos which is buying US ethane for its European petrochemical plants.

By the end of the decade, the top five oil producers will be the US, Russia, Saudi Arabia, Iran and Iraq. As the value of oil falls over time expensive long-term projects will be thrown into doubt.

New technologies such as automation, robots, 3D printing and artificial intelligence could dampen energy demand allowing reshoring, production close to consumers and a decline in freight transport. Utilities face the end of wholesale trading, since customers will be only interested in fixed- priced capacity contracts to power their machines.  Read More

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