Are oil market uncertainties, falling prices taking the sparkle out of London IP Week?

You know that London IP Week is underway when hundreds of attendees gather at the May Fair Hotel to attend the Platts London Oil Forum, which was Monday. Attendance was so high that the 500-plus participants filled three large conference rooms, linked by live video feed and connected by iPads, which got them sharing their views during a series of crucial updates and panel discussions.

Speculation about the price of a barrel of oil has made its way from the business sections to the front page, and as we fast approach $30/b, the hot topic for presenters and participants at LOF 2016 was: How low can it go?

A live poll on the day showed that there wasn’t consensus amongst attendees, with 30% believing that front-month ICE Brent futures contract will be trading at $35-$45/b this time next year, and 40% believing the price will rise to $45-$55/b. What’s significant is that 21% of those who voted believed that price will fall further, with 7% believing it could drop to as low as $15/b.

What is clear is that the drop in price is having an effect on the industry, and this was evident at London IP Week. Joel Hanley, Platts editorial director for European and African oil, summed it up nicely when he said that there are fewer IP Week parties this year, and the drinks being served have also taken a hit. When Platts hosted LOF 2014, a barrel of oil cost roughly the same price as a bottle of Bollinger La Grande Année Brut 2005, whereas now a barrel of oil is comparable to a bottle of supermarket own label Champagne (Tesco Finest Vintage was mentioned).

If the price continues to drop, Hanley questioned whether it will be comparable to cheaper supermarket Champagne or even as low as a bottle of cheap prosecco — there will still be fizz, but if the supply glut continues, will the sparkle be lost for the foreseeable future?

This supply glut was a key feature of the debate. Hanley reported that OECD countries currently hold 3 billion barrels of oil in stock, an all-time high. Given the close correlation between oversupply and the falling oil price, this issue needs to be addressed, but when polled, 76% of respondents at LOF 2016 did not believe that OPEC would agree to cut it production in 2016.

Weighing up issues which may have an impact on supply and demand in 2016, attendees were also polled on US and Iranian exports and Chinese demand. With the historic lifting of the 40-year-old ban on exports, 53% of respondents believed US crude exports would be sporadic and involve a range of grades in 2016.

Asked about the impact that lifting sanctions would have on Iranian exports, a significant 77% of respondents didn’t think that Iran would be able to regain its pre-sanctions European market share.

And when questioned about Chinese demand, there was less consensus, with 46% of believing that China’s crude imports were likely to grow by up to 3%, and 43% believing this growth could reach 7%.

Platts has reacted quickly to significant industry change and Jonty Rushforth, Platts director of oil and shipping price group, used LOF 2016 to announce the launch of a new Dated Brent Cost-Insurance-Freight (CIF) Rotterdam assessment(opens in a new tab), as well as discuss new assessments designed to bring transparency to the US Gulf Coast crude and condensate export market(opens in a new tab).

When polled specifically about the impact of US exports on European refiners, attendees had a range of views. Some 30% of respondents thought any impact wouldn’t be felt until 2017/2018, while 26% believed the impact won’t be felt until after 2018 and 40% thought that US exports won’t have an impact on European refiners at all.

It looks as though 2016 is set to be another year of significant change. From the buzz at LOF 2016, however, it’s clear that business continues.