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BUSINESS DAY TV: Next six months ‘likely to be very volatile’ for oil
by Transcript service, January 19 2016,
2016-01-20 14:45:36.0
Transcript service, January 19 2016
BUSINESS DAY TV: Next six months ‘likely to be very volatile’ for oil
NEIL Atkinson is the head of the International Energy Agency’s oil industry and markets division and Leigh Riley is from IGSA.
BUSINESS DAY TV: Slowing demand and Iran’s revival of exports could see the global oil market drown in oversupply. That’s according to the International Energy Agency (IEA). Oil prices have slipped more than 70% over the past 18 months and the IEA estimates that Iran’s return could pave the way for a further slide as well as a third successive year when supply will exceed demand by 1-million barrels per day.
Neil Atkinson, who is the head of (the) IEA’s oil industry and markets division joins us on the line now from Paris. And with me in the News Leader studio is Leigh Riley of IGSA. Neil, let’s start this conversation off with you. Of course, Iran’s return to the market has emerged as a new factor to consider in this entire equation. Is it enough, as you see it, to trigger a shift in the supply metrics within the sector?
NEIL ATKINSON: To some extent the return of Iran has been widely anticipated since the P5+1 (the five permanent members of the United Nations Security Council — China, France, Russia, UK, US, plus Germany) Agreement was signed last July in Vienna but even so the speed with which the process has been completed has taken people slightly by surprise. But now we are where we are and what we have to look for in the next few weeks is how quickly Iran can move real barrels into the market and how many of them and at what price it’s able to make those sales. Because the pace of Iran’s return is going to be one of the key factors, but only one, not the only one, which determines the trajectory of the market this year.... If Iran is able to return with very high volumes, very quickly, that is likely to have further severe downward pressure on prices in the next few weeks, and possibly for the rest of the first half of this year. So it’s not an easy thing for the oil market to absorb.
BDTV: And then the assumption is that something has got to give within a waning demand environment. So is that simply going to be the price moving forward, can it go any lower?
NA: We say in our report that as it stands on 19 January, if nothing changes from the supply and demand numbers that we are looking at, then clearly there is going to be severe difficulty in terms of managing the growing stocks we’re going to see during the first half of this year, where do we put it, can it be efficiently moved around and stored. Now what will happen, we think, if the oil price does stay at this much lower level for perhaps longer than we thought, is that there may be greater pressure on high cost producers from the non-Opec (Organisation of the Petroleum Exporting Countries) countries particularly the US, there may be greater pressure on them to cut production because they can’t stay in business. On the other side of the balance, there could be some extra stimulus for oil demand from lower prices, but we’re a little sceptical about that because of the generally more gloomy economic news we’re seeing out there and the factors that some key consumers, not least the Middle East countries themselves, they are taking steps to reduce subsidies which will act as a damper on demand. So it’s going to be very interesting and a very volatile period over the next six months.
BDTV: How are you rating the possibility of Opec members starting to rein in supply a little bit more aggressively?
NA: That isn’t going to happen. Opec decided at the end of 2014 that for it to cut its production in a co-ordinated manner in an effort to drag up the oil price to some very uncertain level, all that would probably achieve, would be to provide a price floor for high-cost producers to stay producing at high levels. They would take the market share that Opec would be vacating and Opec would be back to square one with fewer barrels in the market. So I think the chances of that policy being reversed are as close to nil as it’s likely to get. The only way in which there would be co-ordinated production cuts would be if Opec countries were joined by leading non-Opec producers, including countries such as Russia. But crucially as one of the most fast growing oil producing countries in the world in recent years, the US, and it is very hard to see the US ever joining in any kind of production quota system.
BDTV: You spoke about, right at the top, the anticipated pace at which Iran is going to be supplying to the market, what’s your outlook in terms of pace of moderation in the demand scenario because already global oil demand flipped from a near five-year high in the third quarter last year, to a one-year low in the fourth quarter?
NA: Yes, 2015 was an exceptional year because obviously the price fell very dramatically during the latter part of 2014 and through 2015 and to some extent that huge demand boost that we got in 2015 was a one-off. There are only so many miles you can drive or fly or sail and inevitably demand growth in 2016 would be lower than in 2015. At the moment, we’ve kept a reasonably good number for demand growth for 2016 but our inclination at this stage if we were asked, would be the tendency for demand growth to be falling rather than rising, we have to say it’s more likely to fall than grow. And that simply reflects the uncertain economic background that we’re seeing from many countries around the world.
BDTV: Absolutely ... Neil we’ll leave it there for now with you and now to bring Leigh Riley into this conversation, how much relief do you see this oil price actually offering an economy like SA in the face of a weakening rand that we discussed a little earlier?
LEIGH RILEY: Unfortunately, not a whole lot ... food inflation prices are more of a prominent figure in our calculations of inflation locally. And with the fluctuations of the rand and with the weakness that we’ve seen, and as we’ve seen it doesn’t offer us any reprieve, specifically in petrol prices. So continued weakening rand, if we do see that, and even with the potential for Brent crude to come down even more, I don’t believe it’s going to make a whole lot of difference to consumers in the face of rising interest rates, rising food prices and, specifically, the worst drought on record.
BDTV: And as mentioned earlier, we’re anticipating CPI (consumer price index) numbers out domestically this week so the market is on the lookout for that ahead of next week’s MPC (monetary policy committee) meeting....
2016-01-20 14:45:36.0
NEIL Atkinson is the head of the International Energy Agency’s oil industry and markets division and Leigh Riley is from IGSA.
BUSINESS DAY TV: Slowing demand and Iran’s revival of exports could see the global oil market drown in oversupply. That’s according to the International Energy Agency (IEA). Oil prices have slipped more than 70% over the past 18 months and the IEA estimates that Iran’s return could pave the way for a further slide as well as a third successive year when supply will exceed demand by 1-million barrels per day.
Neil Atkinson, who is the head of (the) IEA’s oil industry and markets division joins us on the line now from Paris. And with me in the News Leader studio is Leigh Riley of IGSA. Neil, let’s start this conversation off with you. Of course, Iran’s return to the market has emerged as a new factor to consider in this entire equation. Is it enough, as you see it, to trigger a shift in the supply metrics within the sector?
NEIL ATKINSON: To some extent the return of Iran has been widely anticipated since the P5+1 (the five permanent members of the United Nations Security Council — China, France, Russia, UK, US, plus Germany) Agreement was signed last July in Vienna but even so the speed with which the process has been completed has taken people slightly by surprise. But now we are where we are and what we have to look for in the next few weeks is how quickly Iran can move real barrels into the market and how many of them and at what price it’s able to make those sales. Because the pace of Iran’s return is going to be one of the key factors, but only one, not the only one, which determines the trajectory of the market this year.... If Iran is able to return with very high volumes, very quickly, that is likely to have further severe downward pressure on prices in the next few weeks, and possibly for the rest of the first half of this year. So it’s not an easy thing for the oil market to absorb.
BDTV: And then the assumption is that something has got to give within a waning demand environment. So is that simply going to be the price moving forward, can it go any lower?
NA: We say in our report that as it stands on 19 January, if nothing changes from the supply and demand numbers that we are looking at, then clearly there is going to be severe difficulty in terms of managing the growing stocks we’re going to see during the first half of this year, where do we put it, can it be efficiently moved around and stored. Now what will happen, we think, if the oil price does stay at this much lower level for perhaps longer than we thought, is that there may be greater pressure on high cost producers from the non-Opec (Organisation of the Petroleum Exporting Countries) countries particularly the US, there may be greater pressure on them to cut production because they can’t stay in business. On the other side of the balance, there could be some extra stimulus for oil demand from lower prices, but we’re a little sceptical about that because of the generally more gloomy economic news we’re seeing out there and the factors that some key consumers, not least the Middle East countries themselves, they are taking steps to reduce subsidies which will act as a damper on demand. So it’s going to be very interesting and a very volatile period over the next six months.
BDTV: How are you rating the possibility of Opec members starting to rein in supply a little bit more aggressively?
NA: That isn’t going to happen. Opec decided at the end of 2014 that for it to cut its production in a co-ordinated manner in an effort to drag up the oil price to some very uncertain level, all that would probably achieve, would be to provide a price floor for high-cost producers to stay producing at high levels. They would take the market share that Opec would be vacating and Opec would be back to square one with fewer barrels in the market. So I think the chances of that policy being reversed are as close to nil as it’s likely to get. The only way in which there would be co-ordinated production cuts would be if Opec countries were joined by leading non-Opec producers, including countries such as Russia. But crucially as one of the most fast growing oil producing countries in the world in recent years, the US, and it is very hard to see the US ever joining in any kind of production quota system.
BDTV: You spoke about, right at the top, the anticipated pace at which Iran is going to be supplying to the market, what’s your outlook in terms of pace of moderation in the demand scenario because already global oil demand flipped from a near five-year high in the third quarter last year, to a one-year low in the fourth quarter?
NA: Yes, 2015 was an exceptional year because obviously the price fell very dramatically during the latter part of 2014 and through 2015 and to some extent that huge demand boost that we got in 2015 was a one-off. There are only so many miles you can drive or fly or sail and inevitably demand growth in 2016 would be lower than in 2015. At the moment, we’ve kept a reasonably good number for demand growth for 2016 but our inclination at this stage if we were asked, would be the tendency for demand growth to be falling rather than rising, we have to say it’s more likely to fall than grow. And that simply reflects the uncertain economic background that we’re seeing from many countries around the world.
BDTV: Absolutely ... Neil we’ll leave it there for now with you and now to bring Leigh Riley into this conversation, how much relief do you see this oil price actually offering an economy like SA in the face of a weakening rand that we discussed a little earlier?
LEIGH RILEY: Unfortunately, not a whole lot ... food inflation prices are more of a prominent figure in our calculations of inflation locally. And with the fluctuations of the rand and with the weakness that we’ve seen, and as we’ve seen it doesn’t offer us any reprieve, specifically in petrol prices. So continued weakening rand, if we do see that, and even with the potential for Brent crude to come down even more, I don’t believe it’s going to make a whole lot of difference to consumers in the face of rising interest rates, rising food prices and, specifically, the worst drought on record.
BDTV: And as mentioned earlier, we’re anticipating CPI (consumer price index) numbers out domestically this week so the market is on the lookout for that ahead of next week’s MPC (monetary policy committee) meeting....
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