Media missives from ADIPEC 2024

With ADIPEC 2024 drawing to a close on November 7, the Oilholic capped a fascinating and engaging week out in Abu Dhabi by hosting four pivotal industry panel sessions at the event on subjects ranging from climate finance to hydrogen markets in Asia.

Yours truly also hit the airwaves to discuss the wider energy market, impact of the US elections, an incoming Donald Trump administration and the various developments at ADIPEC 2024 which attracted over 200,000 people this year. 

These included broadcasting calls with the BBC, WION, Energy Connects and more, with this blogger's week also peppered with plenty of missives via the keyboard for Forbes, and of course this blog.

All blog entries for each ADIPEC may be found here. And here are selected Forbes copies in chronological order based on soundbites and insight from the event. 

• ADNOC Boss Urges Energy Peers To Fully Embrace Power Of AI, November 4, 2024
• Donald Trump’s Presidency Will Likely Boost U.S. Oil Output In 2025, November 6, 2024
• Strait Of Hormuz: Why Iran Wont Harm Critical Oil Shipping Route, November 7, 2024
• British Energy Majors May Lean More On Oil And Gas To Boost Profits, November 8, 2024
• New U.K. Tax Rates Are Hammering North Sea Oil And Gas Drilling, November 12, 2024

That's a wrap for this year's ADIPEC. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Gaurav Sharma at ADIPEC 2024 studio in Abu Dhabi, UAE on November 4, 2024 © dmgevents /APCO Worldwide. 

Are we back to fundamentals as oil prices tank further?

For the second successive session this week oil prices have slid further and faster. After Monday's declines of over 2%, Tuesday has logged fresh intraday drops of as high as 5%. 

At the time of writing this post, The Oilholic noted that Brent and WTI front month futures contracts had breached their respective $74 and $70 per barrel floors. Headwinds are in fact gathering momentum and yet lower prices may follow. 

Over the weekend, China's promised economic stimulus underwhelmed the market with its vagueness. Then came a revelation that OPEC - deemed the most bullish of the crude oil demand growth forecasters - had revised its prediction lower for 2024 below 2 million bpd. The IEA's prediction is below 1 million bpd. 

And if that wasn't bearish enough, media reports, led by The Washington Post, also suggested on Tuesday that Israel may not attack Iran's oil facilities as feared. So has the risk premium effectively decoupled and are we now back to market fundamentals driving the oil price again? Largely yes in an oversupplied market. But then again not a complete yes yet, as its contingent upon what Israel may or may not do next! 

That said, outlandish $100 per barrel oil price predictions can once again take a back seat. That's all for the moment folks! Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Oil production site. © jplenio / Pixabay, 2018. 

Risk weighting oil in the current climate

The last few weeks have been relentless in terms of geopolitical developments and their impact on the oil market - albeit a somewhat oversupplied one with plenty of barrels to more than meet global demand. 

From the lows of September last seen in December 2021, the Brent front-month contract has ended the current trading week posting its highest weekly rise in almost two years. The reason is a bit more complicated than yet another escalation of tensions in the Middle East.

On Tuesday, Iran hit Israel with a barrage of ballistic missiles in response to its "aggressive acts," including the killing of Hezbollah leader Hassan Nasrallah in Lebanon.

With speculation rife about Israel's impending response to Iran, Brent futures stemmed their decline towards $70 per barrels and started inching up towards $80. The inching quickly turned climbing on Thursday after US President Joe Biden decided to make an "off the cuff" remark about discussing with Israel if it could go after Iran's oil facilities. 

Four key ones spring to the Oilholic's mind as yours truly noted in an article for Forbes. These sites may well have a target on their back but any potential Israeli action does not need to be spelt out by a sitting US President 4 weeks from a presidential election. 

Cue a 5.5% spike in Brent futures on Thursday, followed by another 2% today, bringing prices closer to $80. That prices are still below the $85 level seen at the start of the third quarter last year, as well as earlier this year, is down to the fact there is plenty of crude in the market at a time of uncertain demand. 

So the question is where do we go from here? In that respect, things are pretty much as they were at the start of the week when the Oilholic was interviewed by Reuters, i.e., risk weighting for front-month oil futures is currently contingent upon what Israel might do next and if there is a direct confrontation with Iran.

It is now (almost) guaranteed that such a confrontation is now not a question if but when, as yours truly said on subsequent back-to-back BBC News interviews following Iran's attack on Israel on Tuesday and Biden's astounding intervention on Thursday. 

Now, if its a case of simple mathematics, Iran's 1.7 million barrels per day (bpd) in oil exports, mainly to China, can be taken care off by the rest of the market should they be knocked offline by Israel. Because as things stand, the crude market will likely end this year and start the next with a surplus.

However, should the conflict broaden to engulf the Gulf and hit exports from Saudi Arabia, UAE, Bahrain and Qatar, as well as hold-ups in the Strait of Hormuz, we would almost certainly be looking at an upward lurch to $100 Brent prices. Where this goes is anybody's guess and all eyes are now on Israel. Well that's all for now folks! Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo I: Oil pump jack building block model at the AVEVA World 2023 Conference, Moscone Center, San Francisco, US. © Gaurav Sharma. Photo II: Gaurav Sharma on BBC News on October 3, 2024 © BBC. 

Stock market carnage wobbles oil bulls' stance

Before the recent global stock market carnage hit, bulls in the oil market had already revised their pipe-dream of $100 per barrel Brent prices down to still somewhat unrealistic $90 prices. 

In the face of uncertain summer demand in the Northern Hemisphere, oil prices were already wobbly prior to the wider market volatility. To the Oilholic, even lower to mid-$80 levels appeared to be on the higher side back then. Then - at least from the Bulls' standpoint - disaster struck last week. 

Stock market fears in the US on Friday (Aug 2) spilled over to Asia on Monday sparking declines from Tokyo to Frankfurt, and London back to New York and pretty much all else in between. 

Since energy markets don't operate in isolation from the wider macro climate, oil futures also took a predictable hit, with the Brent front-month contract sliding down to $75 at one point. Recovery followed on Tuesday, both for the stock market as well as the oil market. However, the future direction of travel is not as clear cut for crude markets. 

With lack of clarity on demand and plenty of non-OPEC, especially US, crude available, these days tension in the Middle East doesn't create the kind of price spikes the market had become accustomed to seeing in the previous decade. And in case you haven't heard, the latest Energy Information Administration (EIA) weekly data suggests new all-time US oil production record of 13.4 million barrels per day (bpd) and currently projected to rise to 13.7 million bpd in 2025.

Elevated levels of geopolitical tension offer ample proof of that, and price spikes caused by risk now tend to fizzle out pretty quickly unless energy infrastructure is hit, as yours truly recently told Reuters. And it hasn't been hit so far. 

Meanwhile, both the IEA and OPEC are stuck in their respective positions that oil demand growth for 2024 will below 1 million bpd for the former and above 2 million bpd for the latter. Even if the figure is an average of the two, that demand growth can currently be serviced by the uptick in non-OPEC production alone. 

Not a single physical crude market source and their solver models (i.e. what-if analysis 6 months out) seem to indicate he/she is having (or will have) difficulty in securing crude cargoes at their projected price points, especially of light sweet crude. 

And Brent also remains in backwardation, i.e. a position wherein the current price is higher than prices trading in the futures market for later months. June 2025 Brent prices are nearly $3 lower than front-month (Oct) Brent prices. 

Many in the market are now calling for a $75 Brent floor. It is something the Oilholic has long suggested would be the lower end of a $75-$85 per barrel Brent price range. Looks like the Bulls may well have to recalibrate their long calls yet lower again. Well, that's all for the moment folks. More musings to follow soon. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Oil pump jack building block model at the AVEVA World 2023 Conference, Moscone Center, San Francisco, US. © Gaurav Sharma, October 2023. 

Additional ADIPEC Energy Dialogues

As revealed in July, for much of 2020 yours truly has been participating in the recording of the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) Energy Dialogues series. Here is a further selection from the series, also available via ADIPEC's YouTube channel and the event's website.

Recent sessions included informative discussions with Dr. Peter Terwiesch, President of Industrial Automation at ABB, Craig Hayman, Chief Executive Officer of AVEVA and Hugo Dijkgraaf, Chief Technology Officer of Wintershall Dea. 

Dr. Peter Terwiesch, President of Industrial Automation, ABB

Craig Hayman, CEO, AVEVA

Hugo Dijkgraaf, Chief Technology Officer, Wintershall Dea

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© Gaurav Sharma 2020. Video © ADIPEC / DMGEvents, UAE

End of 'voluntary' Saudi cuts, no Covid-19 end in sight

In the lead up to the OPEC+ summit on June 6, oil benchmarks continued to rise toward $40 per barrel and subsequently went beyond. Brent even capped $42 levels briefly as OPEC+ decided to predictably rollover ongoing crude production cuts of 9.7 million barrels per day (bpd) - scheduled to end on July 1 - by another month. 

All of it was accompanied by the common din of crude oil demand returning, underpinned by hopes of China reverting to its average importation rate of around 14 million bpd by end-2020. Such an assumption is fanciful in the Oilholic’s humble opinion, as a semblance of normalcy, especially in the aviation sector, is unlikely before Q1 2021. But even that assumption was further punctured by Saudi Arabia withdrawing its additional 'voluntary' cuts of 1 million bpd in June, atop what they were already cutting as part of the OPEC+ agreement. 

To quote Saudi Oil Minister Prince Abdulaziz bin Salman: "The voluntary cut has served its purpose and we are moving on. A good chunk of what we will increase in July will go into domestic consumption."

Be that as it may be, that's bearish joy for those with short positions who can now also count on rising sentiment in favour of a second wave of the Coronavirus or Covid-19 hammering crude oil demand, with rising cases in the U.S. and as well as a fresh outbreak in China. So, oil futures have duly retreated from $40 levels.

However, here's what this blogger doesn't get – how can it be all about a possible second wave, when the initial pandemic is far from over! Just look at the official and anecdotal data coming out of India and Brazil. 

And while European pandemic hotspots might be cooling down, the initial threat is far from over. A crude market recovery remains a long, long way off. The Oilholic reckons it will be Q1 2021 before we get into a proper recovery mode and can think of a nuanced reversal in market fortunes. By that argument near-term volatility is likely be in $30-40 range, unless Covid-19 situation escalates. To assume the only way is up from $40 is pretty daft. That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2020. Image by Omni Matryx from Pixabay. 

Addressing the information gap on Abu Dhabi

While Dubai often hogs the limelight, the principal emirate in the United Arab Emirates is Abu Dhabi which holds over 8 per cent of the world’s oil reserves. It is a key regional player and an economic power in its own right, yet few written works have examined its culture, politics, influence and economic prowess on a standalone basis. Abu Dhabi: Oil and Beyond is author Christopher Davidson's commendable attempt at addressing the perceived information gap.

The author justifies his quest to write a comprehensive volume on Abu Dhabi by noting that with 90 years of remaining hydrocarbon production and with plans to increase oil output by 30% in the near future, the emirate of will have the resources and surpluses it needs – regardless of the vagaries of broader economic trends. Simply put, ignore Abu Dhabi in a regional or global context at your peril.

Yet it is not all about the oil as Davidson explains via his book of just under 250 pages split by seven detailed chapters. He dives into history and sequentially charts Abu Dhabi’s transformation from an 18th century sheikdom to its current status in the global economy. Dynastic politics, culture, strategic investment (via its mammoth sovereign investment fund), regional influence, have all been examined in some detail, along with the emirate’s “new economy” and its moves away from a traditional oil and gas export oriented structure.

However, the book need not be mistaken for a glorified tale or positive spin about Abu Dhabi. Rather it is a pragmatic examination of the emirate. To this end, the author does not shy away from discussing a number of problems that may surface to impede economic development and undermine political stability in his concluding chapter.

Civil and socio-economic issues, media censorship, an underperforming education sector, terrorism and rising federal unrest have all been discussed. Overall, Davidson’s work is interesting and informative. It is a must read for those interested in Middle Eastern geopolitics and oil. That aside, students of history, the oil business and those of a curious disposition fascinated by the Emirates might find it well worth their while to pick this title up.

© Gaurav Sharma 2011. Photo: Front Cover – Abu Dhabi: Oil and Beyond © Hurst Publishers, May 2011.