Americas News
Offshore Oil Investments Crucial to Avoid Shortages in 2020: Hess
Ultra-low sulfur diesel (ULSD) is accelerating total oil consumption growth this year well above the 10 year average due to a surge in worldwide industrial activity, according to Bloomberg; however, the agency warns that strong demand and refinery outages has drained diesel stocks, and if a cold spell later this year or in early 2018 occurs, the market could tighten even more and trigger another price spike.
European diesel benchmark prices have surged above the $550 per metric ton level for the first time since July 2015, up from $409.50 just three months ago; significant demand increases have been reported in Asia and the U.S.
David Fyfe, chief economist at commodities trader Gunvor Group Ltd., said, "Diesel demand is very strong on the back of industrial demand, freight and construction activity."
To which Thibaut Remoundos, founder of Commodities Trading Corp., added, "Gasoil is very tight ahead of winter with low stocks," and that given how bullish funds' positioning is, the fuel's performance will be key for crude prices for the next several months.
While this is presumably good news for analysts who worry about the persistence of the global glut, it's not so good for experts such as Greg Hill, chief operating officer for Hess Corp, who told delegates to an energy conference at Rice University's Bake Institute that unless bigger investments are made in offshore oil production, a supply squeeze will occur by 2020 - because overall, demand is far outstripping output.
He said, "The world is going to have to invest in more than shale," and that although deepwater projects require higher capital expenditures than shale, costs are declining due to improving efficiency.
If demand continues at its current pace, it could also impact the large proportion of ship owners and operators who are expected to swtich to using distillate products in 2020 when the new 0.50% global sulfur cap comes into force.
Meanwhile, for Ben van Beurden, CEO of Royal Dutch Shell, current market conditions mean that prices will continue to escalate, albeit in an unspectacular fashion.
He told CNBC, "I do think oil prices are going to go up over time as a result of the tightening of the market; it's not unreasonable to expect that if you want to make financial projections going out in the future, you want to make projections around $60 oil by the end of the decade."
While the impending sulfur emissions cap has caused considerable consternation within shipping circles, people such as Cem Sarai, CEO for the Cockett Group, recently told Ship & Bunker that the imposition is a "great opportunity" to benefit from a growing market share.
