WEEKLY ENERGY RECAP: Strong demand, despite ample supply

The logo of the Organization of the Petroleum Exporting Countries (OPEC) sits outside its headquarters in Vienna, Austria. (REUTERS/Lisi Niesner/File Photo)
Updated 17 November 2019

WEEKLY ENERGY RECAP: Strong demand, despite ample supply

Brent crude rose above $63 for the first time in more than seven weeks despite a bearish International Energy Agency (IEA) 2019 outlook that was published shortly before the monthly report from the IEA.

As usual, that highlighted weak demand and rising non-OPEC supply of some 2.3 million bpd in 2020, which is higher than the 1.8 million bpd this year.

The Paris-based organization opined that this would eat from the Organization of the Petroleum Exporting Countries (OPEC) market share and lead to a decline in OPEC’s crude oil output by around 1 million bpd.

However the IEA neglected to report that the US oil and gas rig count continued to fall for the 12th time in the past 13 weeks. 

According to Baker Hughes data, the total oil and gas rig count dropped to 806. 

Still, Brent crude still continued to hover in a narrow range most of the year trading sideways at around $60 per barrel both prior to and after the Sept.14 attacks on Saudi Aramco oil facilities. 

Year to date, Brent crude rose above $70 per barrel only for a short time during April and May and never made it above $80 per barrel, unlike last year.

Oil prices managed to edge higher despite the 2.2 million barrels build in US crude oil inventories, which makes it the 9th rise in US crude inventories for 8 weeks, that added a total of more than 40 million barrels of oil to US commercial inventories, as reported by the US EIA.

The IEA continues to push the thesis that higher US output will shrink the market share of OPEC members and Russia in total oil production. 

The timing of this conclusion is very questionable ahead of OPEC’s early December 2019 meeting, as it is premature to conclude that OPEC+ producers will face a major challenge in 2020 as demand for their crude is expected to fall sharply.

The IEA also irrationally emphasized that the market is currently well supplied not only from the US, but also from relatively new growth prospects like Brazil’s offshore fields, and even from older, mature Norwegian fields in the North Sea.

The IEA completely ignores the market’s strong fundamentals. For instance, China’s refining capacity remains historically high at 13.68 million bpd, jumped 9.2 percent, or around 1.15 million bpd year on year, according to data from the China National Bureau of Statistics. 

Consequently, China’s crude oil imports surged 1 percent year-on-year to hit a historical high of 10.76 million bpd in October. 

Higher demand is further expected as refineries in China will strive to maximize petrochemical yields ahead of the Christmas manufacturing season. 

Another market positive downplayed by the IEA is the strength in the physical sour crude oil market, representing tighter supply fundamentals.

Such factors suggest the market may be in better shape than the IEA suggests.


Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco.  Twitter:@faisalfaeq





Dubai airport prepares for ‘slow recovery’

Updated 28 October 2020

Dubai airport prepares for ‘slow recovery’

  • CEO urges countries to move away from mandatory quarantines on arriving passengers

DUBAI: Dubai International Airport, the world’s busiest for international travel, is getting busier. But it’s a long way from what it once was amid the coronavirus pandemic as it prepares for a possible “extended, slow recovery,” its CEO told The Associated Press.

After long-haul carrier Emirates drastically cut its flights in March and slowly resumed its routes, passenger numbers at the mammoth airport serving East-West travel have crept up to over 1 million a month — just below 15 percent of what they were a year ago, CEO Paul Griffiths said.

To boost those numbers, Griffiths is urging countries to move away from mandatory quarantines on arriving passengers and toward the strategy embraced by Dubai. That includes aggressive coronavirus testing before departure, followed by mandatory mask-wearing on aircraft and testing on arrival.

“What we have to do is take appropriate measures to control and manage the risk, which actually are acceptable. I mean, life is full of risk management. It’s not all full of risk elimination,” Griffiths told the AP in an interview. 

“Surely the same should apply to the virus. We need to get it under control to minimize the risk of infection.

“And that can be done with some of the measures that we’ve got available to us without prolonging the social and economic damage that is currently being inflicted.”

Across the wider Middle East, passenger numbers this year are expected to reach only 60 million, down from 203 million in 2019, according to the International Air Transport Association. That’s only 30 percent of last year’s numbers.

The recovery may take years. By 2021, the trade group hopes to see 90 million travelers in the Mideast, still drastically lower than 2019. In order to get passengers flying before a vaccine is widely available, the IATA is calling for mass, rapid testing of passengers rather than quarantines by countries.

Those quarantines hobble those considering taking a trip, Griffiths said. Instead, countries should move toward offering electronic “health passports” or other measures to aid in ensuring safety while in the air.

Griffiths said he believed air travel, with passengers properly masked, remained safe. Anecdotal evidence cited in a Journal of Travel Medicine article published in September showed no passengers contracted the coronavirus on five Emirates eight-hour flights to Hong Kong despite having 58 passengers spread among the flights who tested positive on arrival.

“Travel and tourism and the ability of people to freely move about their business every day is actually something that would kick-start the economy,” Griffiths said. “And the key of that is the international travel and the use of aircraft has already been proven to be pretty much advanced in controlling the spread of the virus.”

For Dubai, the resumption of flights remains deeply in their business interest.

Emirates remains the linchpin of the wider empire known as “Dubai Inc.,” an interlocking series of businesses owned by the city-state. The Investment Corporation of Dubai, a sovereign wealth fund, owns Emirates in its entirety, as well as the lucrative Dubai Duty Free.

Those duty free sales in 2019 accounted for $2 billion in revenue, including over 15 million cigars and 2.9 million bottles of perfume. 

The corporation did not respond to a request for comment on 2020 sales, though its last financial report acknowledged “measures to contain the virus have resulted in temporary closure of the stores.”

Some duty free shops have reopened in parts of the airport in the time since. Dubai authorities also have given Emirates a $2 billion bailout while laying off thousands of staffers. 

As far as the airport, Griffiths said he “cannot rule out” the need to fire some of its over 2,000 employees if there’s a slow recovery.

Dubai reopened for tourists in July, even as neighboring Abu Dhabi still requires even UAE residents to have just-received virus test results to come into the emirate. There’s a noticeable uptick in flights in the air as Emirates offers touchless check-ins and other measures to woo travelers.

Still, Emirates’ iconic fleet of double-decker Airbus A380s largely has been grounded. At the start of the year, the world saw 2,400 flights by the aircraft a week — the majority of those by Emirates, according to the flight-tracking website FlightRadar24.com. At most now, there are just over 100 flights a week — the majority of them still flown by Emirates, the website said earlier this month.

“The thing is that what we’ve got to understand is that air travel will bounce back. We will get back to levels that we’ve seen before,” Griffiths said. 

“We just can’t say how long and when. And the 380 will once again come into its own once those volumes return.”