TORONTO: CERAWeek, the energy Super Bowl was on in Hous­ton the entire last week, assembling an extraordinary group of some 3,000 people, including 488 speakers, from 60 countries.”

Far from the grim vibe last year, the mood at the Houston energy event this year was considerably and evidently lighter. And indeed there were reasons. From the lows of the last year, oil prices are about 70 per cent higher.

“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 not all the messages were too rosy. “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 highlighted.

Already more investment in the US shale, especially the Permian basin, is on the way. Discussions too at CERAWeek seemed to revolve around “Permania” – as Daniel Yergin put it. 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. Exxon now plans to boost its 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.

Yet, good, old friend Fatih wanted the oil and the energy fraternity to look at the scenario with a longer prism: “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 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 underlined.

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, 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 reiterated the same message: “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,” Fatih emphasised.

Yet concerns persist. After staying positive for weeks, markets finally blinked last week, going into a ‘meltdown’ amidst concerns that the stubbornly high inventory levels would stay — despite the Opec-led supply cuts.

Bears are seemingly in control. Oil prices plunged, dropping to their lowest levels, with WTI dipping below $50 for the first time in 2017 on March 9, skidding further on Friday.

Prices slumped after the US Department of Energy reported that oil reserves grew by eight million barrels last week, far more than anticipated.

The question now being asked all around was if this was a momentarily disruption or markets are going to go down further? To some Permania seemed to be impacting fast. “The discussion will now center on 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.”

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.

Answering the question, senior Saudi oil officials reportedly told US oil firms in a closed-door session that they should not assume Opec would extend output curbs to offset rising production from US shale fields.

Suhail al-Mazrouei, UAE energy minister, told Reuters 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 can bear the brunt? Immediate crude future remains hazy with too many questions. We may be close to another round — sooner rather than later.

Published in Dawn, March 12th, 2017