As the world’s biggest oil and gas traders descended on Singapore this week for one of the industry’s most important conferences, it wasn’t just the maskless crowds and overcrowded late-night parties that reminded them of days gone by.
After years in the shadow of fast-growing clean energy, hydrocarbon traders returned to the city with a new sense of purpose.
Amid a global energy crisis and reversed trade flows as a result of Russia’s invasion of Ukraine, traders play a crucial role in securing supplies in a world desperate for affordable fuel.
As more than a hundred commodity executives queued at Zouk, a famous nightclub in Singapore where broker Ginga Petroleum was throwing a party during the Asia Pacific Petroleum Conference, there was a sense that the industry, which some critics have dubbed “sunset “ designate, feet have found their place again.
Existential worries about the future have been pushed aside for the time being. In their place, it confirmed that fossil fuels remain a backbone of the modern economy, even as the world slowly moves towards a zero-carbon system.
“Energy security is number one, price is number two, sustainability is number three,” said Russell Hardy, chief executive officer of Vitol Group, the world’s largest oil trader by volume.
“Those are the short-term priorities. The long line of priorities has not changed – they are reversed.”
The global energy industry has had a tumultuous year since Russian President Vladimir Putin sent tanks to Ukraine in February.
Brent crude oil prices immediately soared to a multi-year high and remained volatile even as it erased all gains in the months that followed. Meanwhile, global natural gas and coal prices have hit new highs.
For physical suppliers of crude oil and fuels, the dislocations caused by Russian sanctions are creating new trade flows and opportunities that will prolong a profitable period for companies from Vitol to BP.
More exports from the Baltic and Black Seas will be shifted to Asia ahead of new restrictions planned for December 5, setting the stage for a restructuring.
However, when you bring thousands of energy traders together, you are bound to get some glaring disagreements, and 2022 was no different.
While officials from Indonesia and India spoke about not being able to ignore cheap Russian supplies while scrambling to ensure reliable flows, those seeking clarity on China’s recovery were disappointed as few from the mainland attended networking events were.
Others urged Opec+ to cut production or risk sending markets into contango.
Some traders feared Russia’s invasion of Ukraine this winter could trigger further supply disruptions, sending prices to record highs. Others wondered if a European recession and China’s Covid-zero approach would derail consumption.
Oil is now trading below pre-war levels due to macro headwinds like a stronger US dollar and recession concerns, said Saad Rahim, Trafigura Group’s chief economist.
But that doesn’t reflect the fundamentals and factors that could trigger a surge in demand and overwhelm a market with little spare capacity — for example, the possible end of Covid-zero measures and a return to international travel in China, or a pause in US tightening its monetary policy.
Another hotly debated topic was a US-proposed price cap on Russian oil, which prompted a lively panel discussion between representatives from Vitol, consulting firm FGE and the US Treasury.
Though details on the proposal remain sparse, the US wants to make sure global markets aren’t deprived of a key source of supply even as it seeks to slash Moscow’s energy revenues.
FGE chairman Fereidun Fesharaki called the cap “impractical, unnecessary and a bad idea,” while Vitol’s research director Giovanni Serio stressed the complexity of trying to model its effects. But he said the cap could act as a “potential relief valve” for global oil markets, which would otherwise see prices spike dramatically if Russian supplies were cut off.
Keeping heaters going this winter and next in the northern hemisphere will require a lot of traditional oil and energy supplies, even as countries aim for a net-zero future, which will be critical for generations to come.
What will be watched closely over the coming months and years will be oil and energy company earnings, their investment patterns and how they will balance financing traditional fossil fuel assets against renewable projects.
Updated October 02, 2022, 4:00 am