MPGC: Oil price strength here to stay; demand fails to waver

April 7, 2008
Oil price volatility is here to stay, with prices fluctuating within the range of $70-110/bbl and averaging $85-90/bbl this year, MPGC attendees told.

Marilyn Radler
Senior Editor-Economics

DOHA, Apr. 7 -- Oil price volatility is here to stay, with prices fluctuating within the range of $70-110/bbl and averaging $85-90/bbl this year. Also, demand growth has failed to waver because new players have emerged, with growth in China and the Middle East, according to Fereidun Fesharaki, chairman and chief executive officer of FACTS Global Energy.

Fesharaki voiced his comments Apr. 7 during the opening of the sixteenth annual Middle East Petroleum & Gas Conference (MPGC), which was themed "Oil Market Fundamentals in the Middle East: Geopolitics vs. Geology."

Fesharaki, who served as MPGC conference chairman, gave a commentary on the state of the global oil and gas markets, touching on a variety of aspects.

He said for oil demand to diminish in the US, it will probably take an oil price of $150/bbl, but this price needs to come as part of a package that includes taxes, Corporate Average Fuel Economy standards, and other restrictions on consumption.

Speaking about the future of supply, Fesharaki said oil supplies from producing countries outside the Organization of Petroleum Exporting Countries will plateau within 3-5 years. Further, with OPEC's annual production decline rates of at least 1.5 million b/d and assumed annual demand growth of 1.5 million b/d, the organization needs to add at least 15 million b/d of capacity every 5 years. "This is an impossible task," Fesharaki said.

As far as the global refining picture, he said from the recent refining capacity shortages that led to high prices, the world is now heading for a surplus of capacity, and refiners in Europe and Japan will suffer the most. Meanwhile, Middle Eastern refiners are a bit late on the scene and must now focus on local markets rather than depend on exports of products. Fesharaki predicts that by 2015, the world will have a huge gasoline surplus and a sizeable diesel shortage.

As far as natural gas, Fesharaki spoke a bit about LNG, saying that the buyer's market is gone forever, but markets will ease in the second half of 2009. Fesharaki also said Qatar is unlikely to raise its LNG exports above their committed 77 million tonnes/year.

In a keynote speech, Adil A. Al-Tubayyeb, Saudi Aramco vice-president of marketing, supply, and joint venture coordination, advocated transforming the Middle East energy business by creating a regional trading hub for refined products. He sees the hub of countries near the Eastern Mediterranean, Persian Gulf, and Indian Ocean as critical in meeting both local and global customer needs.

Al-Tubayyeb said in addition to the favorable geography, the supply and demand dynamics of the region, and the growing refining capacity there, a regional benchmark should be established.

The current Persian Gulf benchmarks are not reflective of the region's fundamentals, there's no transparency, and the netbacks are based on distant markets, he said. Also, trading in the region currently uses a simplistic approach and doesn't follow Persian Gulf trade dynamics or market intelligence, and it has other drawbacks as well.

Contact Marilyn Radler at [email protected].