WITH an "extraordinary" group of some 3,000 people, including 488 speakers, from 60 countries" assembled in Houston for the CERAWeek, often termed as the Super Bowl of the energy world, many felt the times have changed. From grim last year, the mood was considerably and evidently lighter this year. And indeed there were reasons for that. From the lows of the last year, oil prices have staged a significant recovery. Oil market prices are about 70 percent higher than they were last year during the CERAWeek. That gloom of last year was thus vividly gone! "We expect a balanced oil market in 2017 for the first time in nearly three years," Steve Pastor, president of BHP›s petroleum business was quoted as saying. But there are other aspects of the global crude equation that needed to be considered. "We are witnessing the start of the second wave of US supply growth, and its size will depend on where prices go," Fatih Birol, executive director of the IEA conceded in Houston. And it is impacting! Already more investment in the US shale basin seems on the way. Discussions too at CERAWeek seemed to revolve around "Permania" – as the rock star of the energy world Daniel Yergin pointed out. Interestingly. the oil›s resurgence isn›t confined to the US alone. There is evidence of growth in supply from Canada and Brazil too. Already this year, Total and BP have launched multi-billion dollar deals to expand in Brazil and Mauritania, respectively. Many analysts feel that better prices could stir a new round of merger activity. And this could neutralize OPEC moves to stabilize prices. Oil majors appear considerably more active than last year. Exxon now plans to boost it's spending in 2017 by 16 percent, expanding its operations, especially in shale production. Shell too has announced its decision to proceed on a Gulf of Mexico deep-water project, the first such approval it had made in more than 18 months. Ye Fatih was looking at the mid-to long-term scenario. And he was obviously worried. "This is no time for complacency. We don›t see a peak in oil demand any time soon. And unless investments globally rebound sharply, a new period of price volatility looms on the horizon." The warning was based on its latest five-year oil market forecast. The IEA strongly feels that the global oil supply could struggle to keep pace with demand after 2020, risking a sharp increase in prices, unless (more) new projects are approved soon. The global picture appears comfortable for the next three years but supply growth slows considerably after that, ‘Oil 2017', the IEA's market analysis and forecast report, previously known as the Medium-Term Oil Market Report underlined. As per the IEA, oil demand will rise over the next five years, passing the symbolic 100 million bpd threshold in 2019 and touching 104 million bpd by 2022. Developing countries account for all of this growth and Asia dominates, with about seven out of every 10 extra barrels consumed globally. The IEA also points out that while electric vehicles are an important factor for oil demand, they will displace only limited amounts of transportation fuel by 2022. The demand and supply trends, as per the IEA, thus points to a tighter global oil market, with spare production capacity in 2022 falling to a 14-year low. Saudi Energy Minister Khaled Al-Falih too spoke in the same tone: "if we look at global demographic and economic trends, there is little doubt that global energy demand will grow significantly, despite advances in technology and gains in energy efficiency leading to lower energy intensity." He then reiterated the message delivered by Birol. "Indeed, demand for petroleum imports will continue to grow steadily in the developing world, especially with the decline in their indigenous oil and gas production." Therefore, misguided projections of peak demand and stranded petroleum resources may discourage the trillions of dollars in investments needed to underpin essential oil and gas supplies, during the long transformation of our global energy system." Falih continued to highlight the issue, underlining the risks of underinvestment. That, in turn, would create heightened market volatility including damaging price spikes, and more acute energy poverty in the developing world." Indeed Falih couldn't be more candid on the subject. But by Wednesday, things began taking a turn – and for bad. After staying positive for weeks, markets finally blinked, going into a ‘meltdown' amidst concerns that the stubbornly high inventory levels would persist despite supply cuts. And this engineered the biggest price rout of the year. The slump came after the US Department of Energy reported that oil reserves grew by eight million barrels last week, far more than analysts anticipated. Bears once again appeared in control. Oil prices plunged, dropping to their lowest levels since December. WTI dipped below $50 for the first time in the year on Thursday, skidding further again on Friday, pushing prices to three-month lows. The question now being asked all around was if this was a momentarily disruption or markets are going to go down further? No one has the Crystal Ball to answer - yet - some felt a new wave of market share war could be on the horizon. "The high level of uncertainty that has kept the oil complex trading in a relatively narrow trading range since late last year has been replaced, at least for the moment, by a bearish market sentiment," said Dominick Chirichella, senior partner at the Energy Management Institute in New York. "The discussion will now center around whether or not Saudi Arabia is willing to give back market share to US producers ... or are they ready for yet another round of the market share war." Big question marks persist. As per Reuters, quoting industry sources, senior Saudi oil officials reportedly told US oil firms in a closed-door meeting they should not assume OPEC would extend output curbs to offset rising production from US shale fields. Separately, Suhail bin Mohammed Al-Mazrouei, energy minister for the United Arab Emirates, told Reuters this week the rise in US inventories was a "worry," and that "investors need to be cautious not to bring so much production online," because OPEC "cannot do it in isolation of others." The dip has cast doubt on how long OPEC will be willing to cut output if prices keep falling. ConocoPhillips is betting on oil "lower for longer" and a lot of volatility ahead, its CEO told CNBC on Tuesday – even before the meltdown began. John Kilduff, the founding partner at energy hedge fund Again Capital is of the view that speculators have finally thrown in the towel and oil is heading to $42. The focus is back on the OPEC and its kingpin, Saudi Arabia. With the rapid softening of the markets, OPEC's strategy to balance the oil market and bolster prices is facing a major challenge. What would it do in the given scenario? Would it be ready to concede more market share to the US or would it begin contesting it again? No one has a definite answer at the moment. Interesting times seem ahead. The geopolitical crude chessboard has been spread out – once again. The next moves on the chessboard could be interesting and are awaited.
