World Energy Congress, Daegu, Korea, 16 October 2013: Political and public interest in oil markets remains high, with concerns that prices are subject to manipulation, delegates at the World Energy Congress were told today. The concern comes even though recent academic studies suggest that oil prices are driven primarily by the fundamentals of supply and demand.
A panel of industry experts noted that shifts in global and regional oil markets, the trading of oil futures in such emerging financial markets as Dubai and Shanghai, growing Russian energy exports to Asia and booming US shale oil production could have a significant impact on price discovery.
Edward L. Morse, Managing Director and Global Head of Commodities Research at Citigroup in New York, said: “Transparency is becoming a major issue.” Noting the rise of non-OECD economies in the global energy market, he added, “This is the month in which China overtakes US as the largest importer of crude oil.” The rise of non-OECD markets brings additional challenges in the quality and transparency of data, he said.
“China needs to take the lead if the world is going to become more transparent,” he continued. To help tackle challenges, the US needs to overcome regulations and prohibitions on the export of crude oil following the boom in shale oil and gas production in recent years.
Other speakers argued that global oil benchmarks such Brent, WTI, and those published by industry media are still fair and transparent in calculating pricing.
Jorge Montepeque, global director of market reporting for Platts, a leading global provider of energy and petrochemicals information, said: “The question is not whether the price is right. It is whether you can have policies that can make the price friendlier towards you.”
Montepeque pointed to two big trends that could prompt a change in benchmarks. First, the West isn’t comfortable with prices that stand at $110 per barrel, while demand from Asia is rising fast, shifting the global landscape.
“I wonder what is going to happen in the next five to 10 years as markets evolve and maybe benchmarks evolve,” he asked.
Ali Hached, senior adviser to the Algerian Minister of Energy and Mining, said the rise of Asian demand “is being confirmed every day, and that means we need a benchmark for Asia.”
Speaking from the perspective of an oil producing country, Hached believed that current oil prices are generally based on the fundamental concept of supply and demand.
Gary King, President and CEO of Tarka Resources and former CEO of the Dubai Mercantile Exchange, noted that if change comes, it may be slow.
He cited the “tremendous” risks, enormous amounts of capital, and potentially hostile environments that hydrocarbon companies face. “The oil industry is conservative when it comes to changing practices and adopting new benchmarks,” he said.
Further details at www.worldenergy.org and @WECouncil
Source: World Energy Congress