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RIU GoodOilConference acknowledges Trump effect on crude oil supply and emerging market factors

Westpac is expecting limited growth in mature markets, with countries such as India to emerge as growth markets as China matures.
RIU GoodOilConference acknowledges Trump effect on crude oil supply and emerging market factors
The GoodOil is bringing people together

RIU GoodOilConference Perth has been told by Westpac Banking Corp’s (ASX:WBC) (NZE:WBC) (FRA:WBC) (NYSE:WBK) senior economist Justin Smirk to expect accelerated growth but be aware price reactivity kicks in once crude oil costs more than US$70 a barrel.

The crude oil price is currently hovering at the price mark after hitting US$80 a barrel earlier this year.

READ: RIU GoodOilConference told crude oil is back, with further market recovery expected

Smirk spoke to Proactive Investors after his presentation at RIU GoodOil, saying the price sensitivity kicked in more at the US$75 a barrel mark.

He told GoodOil delegates to expect accelerated growth but to be careful of where the growth was coming from.

Smirk said: “The general economy is undoubtedly in a better place.”

Elaborating on the effect of the upturn for oil and gas in an interview yesterday afternoon, Smirk said: “The global economy is creating greater demand, so the demand profile is better than people anticipated.

“We’ve got an environment where people are talking about trade wars and all this uncertainty and normally that would be a negative but given the fact that we’ve got this underlying, strong ongoing growth and demand, it’s basically kept that demand cycle there.”

 

Smirk’s drawcard address, titled Trump, China & Electric Vehicles, What is Next for Oil and Gas, also touched on US President Donald Trump’s push to roll back restrictions on releasing methane.

This week the governor of the US state of California, Jerry Brown, told an international climate change conference the Trump-led move was “insane”.

Smirk took an economic perspective of the mooted change, pointing to the effect a decrease in restrictions would have on costs and therefore supply.

He told GoodOil delegates: “US production has met our targets … output has lifted – prices remain high, US production would carry on further and then anything that reduces costs, the costs of having to do something with methane rather than square it off, helps.”

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Smirk confirmed he expected higher US interest rates rather and a stronger US dollar would be factors going forward.

He told Proactive Investors he is expecting growth out of the non-Organisation for Economic Co-operation and Development (non-OECD) countries in the next five years, especially the non-Organisation of Petroleum Exporting Countries nations, and India.

He said reasons for energy demand growth in India included a growing economy, increasing wealth and the subsequent growth of the middle class and upped use of cars.

The Westpac senior economist said in comparison he was expecting limited growth in OECD countries and a maturation of the Chinese market.

READ: RIU GoodOilConference Perth attracts oil and gas plays on the hunt for juniors

Smirk said: “We do have a forecast profile of where oil prices are to ease through 2019 and that’s on the backdrop of increasing supply coming out of particularly the US, and that is happening.

“The recent events of the Trump administration trying to pull all the regulations off the oil and gas industry is going to help that story, so I think it’s pretty easy to set reasonable growth targets for US oil supply and they’re pretty achievable.

“At these kind of levels, oil producers in the US are finding it easy to forward-sell and get cash to start tapping the wealth that they have drilled but not captured, so that’s giving them some easy access.

“So to think that US supply will continue to grow over the next year, it’s a pretty easy (prediction) to make.”

 

Conference displays are proving popular at Hyatt Regency Perth.

Smirk put a caveat on his comments, saying Westpac was “still seeing stronger growth in demand coming out of China and the developing world than perhaps we had anticipated, so that’s still a good news story there.

“We’re also seeing there’s still a lot of uncertainty about OPEC supply … particularly around Venezuela and Angola, so that’s a negative.

“Also, the Saudi Arabians keep on putting off their float of their oil companies … the trend is for them to stick to their targets and hold oil prices ultimately high before they go into (IPO).”

READ: RIU GoodOilConference Perth and WA Petroleum Day to put oil and gas players centre stage

Supply might be tighter than expected.

“Even given increasing US supply, it’s likely that there is an error around our thinking that supply will be tighter rather than looser, than what we’ve been thinking, so that’s a positive.

“The demand side would be rather robust, I would argue, and then you would overlay our discussion on international marine organisation, their move towards low fossil fuels, that potentially is a positive demand shock for low-sulphur crude – WTI crude.

“If I was going to have a balance of risks around the view, I would say that our forecast is that there’s upside rather than downside.

“If anything, there’ll be a positive side to the upside, there’ll be a positive story lurking out there.”

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