APPEC: Oil prices not staring at 'boom', but 'bust' is also not near

Oil prices may not be heading higher anytime soon as China's appetite shows signs of slowing and US economy may face some demand pressures, but robust outlook in some other demand centers, such as India, could provide a floor to the market, speakers at the Asia Pacific Petroleum Conference (APPEC) said.

"For oil markets, I don't expect a boom. Certainly, things are slowing down. But does that mean a bust? I don't think so. Markets will be stagnant perhaps and that's bad enough for oil, " said Torbjörn Törnqvist, chairman of Gunvor while speaking at a panel titled "Boom or Bust? The Future of Oil Prices."

Commenting on whether oil prices could go down to as low as $50/b, Törnqvist said: "I am not that bearish for oil to go down to $50/b. When oil prices are in their $60s, the cycle starts to turn. There is some stimulation to demand."

The speakers added that oil markets were at a critical juncture where OPEC and non-OPEC suppliers battling it out for market share at a time when some of the biggest oil consumption centers were staring at demand slowdown.

Price war

"I am not surprised by the recent decision of OPEC to extend the production cuts. OPEC does not want to have a price war. But it's a dilemma for OPEC how to deal with both price and market share at the same time," Törnqvist added.

Platts, part of S&P Global Commodity Insights, assessed outright physical sweet crude benchmark Dated Brent at $73.025/b on Sept. 6, marking the lowest level since $72.79/b on June 27, 2023.

According to Commodity Insights, OPEC and its allies' decision Sept. 5 to extend its voluntary production cuts for two months until the end of November is seen as neutral for Brent crude prices from current levels, but short-term fundamentals remain bearish. They expect October to see a crude stock build, regardless, as refinery maintenance will cut October runs by at least 1.6 million b/d from August.

The planned 190,000 b/d hike for October is now set to be a 189,000 b/d hike for December. Likewise, the additional 173,000 b/d hike for November is now set to be a sequential 207,000 b/d increase for January.

Even other speakers agreed that the market was unlikely to see a price war.

"Shale in the Americas is now not produced by a handful of small companies but the big names are involved -- such as ExxonMobil in the US and Petrobras in Brazil. I don’t think we are going to see those big names getting involved in a price war with leading OPEC producers -- like what we saw in 2015," said Jeff Currie, Chief Strategy Officer of Energy Pathways, Carlyle.

He added that continued investments in the oil sector was crucial for the sector, for which oil prices need to remain at relatively attractive levels.

Daan Struyven, head of oil research at Goldman Sachs, said that the floor for oil prices over the past three years had been in the range of $75-$80/b. OPEC cut production whenever prices fell below that level. As a result, volatility was compressed.

"I think OPEC spare capacity is providing a cap in most geopolitical and macroeconomic scenarios. "We still think that OPEC will go ahead at some point in the next few quarters with gradual and moderate production increases. That remains the optimal strategy to preserve cohesion in the group, support demand and also discourage smaller E&P producers. But a price war is unlikely as US supplies have become significantly less elastic," Struyven added.

China slowdown

Some speakers added that while China's demand slowdown was one of the key factors on the demand side, OPEC's recent decision was sending a confused signal to the market.

"There's a war in Ukraine, there a war in the Middle East, the Libya issue is not yet fixed and literally, there a vessel on fire on the Red Sea at the moment. These things should make the oil market bullish. But actually, the market is bearish," said Ben Luckock, global head of oil at Trafigura.

"There are a few things -- a very soft China that's worrying the market. You also have an easing of the cycle that going to begin in the US. And frankly, OPEC which has done a very good job for last five years managing the market for their set of goals, is probably sending a confused message at the moment," he added.

Apart from the COVID-19 distorted years from 2020-2023, Chinese demand growth in 2024 and 2025 is expected to be much slower than it was from 2010-2019 when demand grew at an annual average rate of nearly 700,000 b/d. According to Commodity Insights, China's oil demand growth forecast now stands at 380,000 b/d for 2024 and a similar increase is expected in 2025, as electrification of transportation and a troubled property market hits consumption.

Some speakers, however, added that even though the short-term price outlook looked bearish, they were hoping for a price revival in the future.

"In the short term, the focus is on how China will go through the demand slowdown. There's some negativity around that. And on the supply side, it's the OPEC spare capacity. But for the long-term our view remains fairly constructive," said Helen Currie, chief economist at ConocoPhillips.

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