OREANDA-NEWS. On February 9 over 600 delegates crammed into London’s Mayfair Hotel for the Platts London Oil Forum 2015. I’ve lost count of how many times I’ve attended this annual event, which traditionally kicks off IP Week – it’s a fantastic opportunity for the industry to come together, and invariably features stimulating debate.

But this year was different; very different.

Gone were the re-occurring debates about the unrelenting declining of the European refining sector and the ever expanding appetite of the big four Asian consumers of crude — China, South Korea, Japan and India.  Largely because at this point in time we find ourselves in what will undoubtedly be considered a very notable point in the history of oil markets.

As we have all witnessed, the last few years of range-bound prices of \$100-\$115 a barrel have given way, since mid-2014, to lows not hit since early 2009. Even more fascinating, in February the benchmark Dated Brent crude price has been slogging its way inch by inch back up to not far off \$60/b (\$57.16/b to be precise).

Dated Brent Price

And what that means is extremely hard to determine.

Could this be the market readjusting, the fall in prices being led by companies settling long-term positions, with the futures markets not necessarily reflecting the physical? Or, moreover, have the prices we have seen were been a major overreaction to oversupply?

This view is given credence by a preliminary report by the Bank for International Settlements, as the Financial Times detailed on February 7.

“The near 50 per cent fall in oil prices since mid-June cannot be solely explained by changes in consumption and production…[BIS said] heavy trading on commodity futures markets has also played a part.”

It could even be argued that the brutal round of capital spending cuts announced by oil majors and second tier players – an act possibly destined to drive the price back up in the medium term, as production inevitably comes down – has actually had the effect of nudging prices back up in the short term?

The news on February 9 that OPEC expected global supply growth to slow (see Stuart Elliot’s blog: Is OPEC’s strategy working? ) in 2015 as oil companies reduced spending and drilled less, would certainly add weight to this argument, with crude futures trading higher as a consequence.

Alternatively, are we currently witnessing what’s called “a dead cat bounce?”  Which is a term once favoured on Wall Street to describe a small, brief recovery in the price of a stock, before it slips its sorry way back down.  Has, therefore, the recalibration of financial positions in a low oil price environment given the markets a temporary illusion of upward movement?

What can’t be ignored, or course, is that global oil markets still face a massive oversupply. When you factor in that if sanctions were to be lifted against Iran, an estimated 700,000 b/d of additional oil could flood back onto the market, the fears of those with a bearish outlook become clearer.

While the fall in the US rig count is not insignificant, there’s a case to make that US shale players will quickly offset any fall in supply as prices rise, based on the nature of shale production itself; the ability to get crude out of the ground at unbelievable speeds, to switch on mothballed capacity, and the development of “re-fracking” are not to be discounted.

It was no surprise therefore that Platts London Oil Forum was oversubscribed this year, and no surprise that delegates listened that bit harder and talked that bit longer on the complex issues the oil industry faces.

The extremes of outlook were borne out at the Forum: when Platts Roving Reporter and editing desk head-honcho Maurice Geller polled participants on their outlook for oil prices, a slim majority remained in the \$50-\$60/b ball park. But, pertinently, he received estimates as low as \$30/b, and as high as \$90/b in terms of where prices might head — a \$60 spread.

Neil Atkinson, head of Analysis for Lloyds List Intelligence, put the current confusion into sharp focus; he made it clear that the market was certainly still “shell-shocked” by OPEC’s decision to maintain its oil production ceiling, and by just how firm its resolve to do just that had been.

He added that at these prices, high cost producers would lose the most, with the secondary tier of oil majors suffering in particular.

Though there seemed to be a fair amount of long-term bullishness coursing through the rooms of the Mayfair, with many feeling supply would gradually adapt to demand, the mood was definitely tempered with caution. If you were taking the temperature of markets in January 2014 they were best described as lukewarm due to the lack of volatility.

This year there was definitely an underlying fear that you could get burnt by thrusting your hands into uncertain market waters.

This is understandable, given that the industry has apparently been losing an astonishing \$5.4 billion a day since prices fell to six-year lows, not to mention companies’ share prices haemorrhaging value.

The next few weeks of price movements will certainly give a clearer indication whether any upturn will be sustained, or if the sound of felines hitting the hard, unforgiving pavements of the oil markets be heard once more.