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Welcome back to Energy Source — we have a special edition coming to you today from Lausanne.

We are in Switzerland on the shores of Lake Geneva for the 13th FT Commodities Global Summit. Launched in 2012, the conference brings together senior executives and officials from across the commodity sector to discuss the state of the industry.

The message so far is that we are living in unique times. The west’s sanctions on Russia have led to the biggest shift in global commodity flows in history; shipping is being disrupted — for different reasons — through both the world’s major canals; and the energy transition is creating new commodities and regulations that are transforming the way companies trade and economies function.

Yesterday, we heard from, among others, Citadel’s head of commodities Sebastian Barrack and US assistant secretary of state for energy resources Geoffrey Pyatt.

Today we will interview the chief executives of Trafigura, Vitol, Gunvor, Mercuria and Castleton Commodities and also hear from former Shell chief executive Ben van Beurden in his first public interview since stepping down from the oil major at the end of 2022.

For those of you that cannot be with us, today’s main item features some early highlights. Then Lukanyo Mnyanda and Stephanie Stacey look at what kind of year we can expect in the oil market.

Key takeaways from the FT’s Commodities Summit

Sebastian Barrack, head of commodities at Citadel

Barrack extolled the virtues of data-led analysis and accurate forecasts.

“The informational advantage for commodities trading from the physical trading perspective is diminishing,” he said. Because of the amount of transparent information available today, “the amount of information and data that we can ingest into our process is actually larger than what most other physical traders would be ingesting into their process”.

Barrack went so far as to say that “if you have an accurate enough forecast” you can see a particular trade “before it actually happens”.

Geoffrey Pyatt, US assistant secretary of state for energy resources

He said the US was very focused on crippling Russia’s future energy revenues by ensuring it does not develop new liquefied natural gas projects.

The US has already sanctioned Russia’s flagship Arctic LNG 2 project, but the country has other big projects, either planned or under development.

“Our goal is to ensure that Arctic LNG 2 is dead in the water,” Pyatt said, adding: “We’re very focused on ensuring that Russia is not able to develop new [LNG] projects in order to redirect the gas that it had previously sent into Europe.”

Saad Rahim, chief economist at Trafigura

Asked what the “black swan” event for the commodities market will be, Rahim pointed to two risks.

“One is a widening of the current Middle East conflict. That has obvious implications for oil,” he said. “But I think weather is something that we don’t talk enough about . . . you can see it in the [drought in the] Panama Canal, you can see the hurricane disruptions that [are] very hard to predict.”

Beata Javorcik, chief economist at the European Bank for Reconstruction and Development

Another black swan, according to Javorcik, is the “public backlash against the green transition”. She said that in a recent EBRD survey of 37 countries, the willingness of people to prioritise the environment over jobs was “not there”.

“The group of sceptics plus the group of people who are unwilling to see economic growth being sacrificed for the sake of green transition, these two groups constitute more than 50 per cent in many countries,” she said. “They potentially could change the political discourse.”

Guillaume de Dardel, head of energy transition metals at Mercuria

The west has pushed hard for a green transition, but western governments and companies were “not necessarily well equipped to deal” with a period of weakness in critical mineral prices, de Dardel said.

Prices of critical minerals such as lithium, nickel and cobalt have eased in recent months, and in a period of weakness, it is the “investors with a longer time horizon that can increase market share”, he said. “And the west from that perspective has a shorter time horizon, whether it’s corporations that have to deal with the psychology and emotions of shareholders or governments that have election cycles.”

Where do oil prices go?

Will we have a quiet year in the oil market? That is the question posed in one of the panels in the FT’s Commodities Summit today.

Last week was neither quiet nor boring, with Brent crude, the international oil benchmark, breaking through $90 a barrel, which signals that speculation on the waning power of Opec+ was premature.

The price had retreated after hitting $89.99, but the bulls did not stay away for too long. They returned as concerns mounted over the possibility of a “forceful” Iranian response to a suspected Israeli attack on its consulate in Damascus that killed seven Revolutionary Guard officers.

The risk of a “shadow war” between Iran and Israel could be a “live one”, Helima Croft, head of global commodity strategy at RBC Capital Markets, said last week. It is now not uncommon to hear analysts predicting an oil price of above $100, and Bank of America said Brent could peak at $95 during the summer.

It is a far cry from last year when traders responded to Opec+ production cuts by pushing the price to a five-month low because they were sceptical that cartel members would maintain discipline in the face of weak demand and growing supply from competitors.

While geopolitics has dominated attention, some analysts have argued that the 16 per cent rise in prices since the start of this year has been driven more by fundamentals as the US and Chinese economies outperform expectations.

If the increase in prices is driven by economic fundamentals, rather than geopolitical tensions, price rises could prove durable even if relative calm returns to the Middle East.

“There is a media and political narrative that says we don’t need this stuff, but there is [also] a global economy that isn’t contracting,” said Mark Wilson, an analyst at Jefferies in London.

Traders will then start thinking about levels that will worry US President Joe Biden ahead of a tough re-election fight with Donald Trump in November. Opec+ could also consider whether prices justify returning some of the supply it has removed from the market.

The average price for this year so far is barely changed from 2023 at about $82 a barrel, meaning that the effect on inflation is likely to be muted for now, reducing the immediate need for the US to put pressure on Opec+.

Last week, the cartel said it would maintain its voluntary cuts until July, and expressed satisfaction at “high” levels of compliance. In forecasting a “slight deficit” in the oil market for 2024, the International Energy Agency had assumed that Opec+ cuts would last through the year.

Now traders are actively debating whether the additional supply will come sooner. Is this likely to be disruptive or orderly enough to preserve a balance that suits both Biden and Saudi Arabia’s Crown Prince Mohammed bin Salman?

Some analysts think Opec+ will add supply if prices are sustained near or above $100. While Opec+ would “die” to be able to sell oil at $95-$100, it also does not want to create an inflation shock that ultimately hurts demand, said Bjarne Schieldrop, chief commodities analyst at SEB.

Ben Hoff, global head of commodity strategy at Société Générale, previously warned that the possibility of Saudi Arabia quickly bringing in some 3mn barrels a day hung over the market “like the sword of Damocles”.

Whether or not Opec+ can engineer a “soft landing” rather than a crash in prices will determine whether we are set for a relatively quiet 2024. (Lukanyo Mnyanda and Stephanie Stacey)

Power Points


Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.

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