The oil industry’s biggest party is properly returning to London for the first time since the pandemic, and the hottest topic will be whether prices are gearing up for a major rally.
(Bloomberg) — The oil industry’s biggest party is properly returning to London for the first time since the pandemic, and the hottest topic will be whether prices are gearing up for a major rally.
As traders congregate in the glitzy cocktail bars and luxury hotels of Mayfair for International Energy Week, two issues will top the agenda: whether China’s economic reopening can bolster demand, and if sanctions on Russia will finally slash the energy giant’s supply.
Oil prices have been stuck in a torpor so far in 2023, with Brent futures hovering near $85 a barrel. Yet as China rekindles economic activity and the world’s travel habits increasingly get back to normal, trading giants like Trafigura, Mercuria Energy Group and Vitol Group see scope for a rebound.
“Demand is expected to hit record levels in the second half of the year,” Vitol Chief Executive Officer Russell Hardy said in a Bloomberg Television interview. “The prospect of higher prices in the second half of the year, in the sort of $90-$100 range, is a real possibility.”
After a low-key gathering last year, bars in Shepherd Market, sandwiched between two of London’s Royal Parks, will once again be packed with traders and brokers from across the globe. State oil companies from the Middle East are hiring out five-star hotels along Park Lane for evening events.
But while hydrocarbons will dominate conversations at social events in the evenings, their mention at the formal conference during the day is diminishing.
Many traders still call the event by its former name, IP Week — with the initials standing for International Petroleum — but its organizers, the Energy Institute, rebranded the conference a few years ago as International Energy Week.
Where panels were once dominated by oil executives and traders, there has more recently been a growing focus on the energy transition and sustainable finance. BP Plc chief executive Bernard Looney, one of the few oil CEOs scheduled to speak, has been at the forefront of reorienting away from fossil fuels.
Still, BP shied away from some of its green aspirations this month and back towards oil and gas as consumption bounces back from the pandemic and an investment-deprived industry struggles to keep pace. It’s that mismatch which is stirring the hopes of bulls for return to $100 oil later this year.
“Russian cuts and Chinese demand will be the two biggest talking points,” said Amrita Sen, director of research at London-based consultant Energy Aspects Ltd. “I am expecting a pretty strong east-versus-west divide in terms of views of the world” as Asia leads the demand surge.
The global Brent benchmark has traded in a range of a little more than $10 a barrel for much of the year, as swelling US inventories push crude away from the bumper volatility that defined 2022, when Brent spiked to $139, near a record.
China Impetus
That could be about to change, as a recovery in consumption by China, the world’s largest crude importer, propels global demand to record levels by the end of the year. Chinese demand for jet fuel alone is expected to jump almost 30% between now and August to 908,000 barrels a day, according to BloombergNEF.
Alongside the revival, traders will also be trying to gauge how sanctions on Russia’s exports of refined fuels and crude oil are unfolding. Two false dawns emerged in recent months when expected price spikes failed to materialize with the onset of sanctions on both.
In symbol of the ebullient mood, two of the most important events for traders of physical oil cargoes — the forums run by price reporting agencies, S&P Global Inc.’s Platts unit and Argus Media Ltd. — appeared to reach maximum capacity for attendees.
Moscow has said it plans to cut shipments from next month in retaliation for western-led sanctions, and there have been some signs of flows dropping off lately. It’s expected that there will be a smaller-than-usual Russian contingent in Mayfair this year.
“People are traveling from all over the world to attend this,” said Keshav Lohiya, founder of Oilytics Ltd. in London. “I think the theme will be long-term structural issues. Yes, the markets are weak right now, but are commodities in a position to live without Russia for the long-term.”
(Updates with additional details from fourth paragraph.)
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