Trafigura CEO Weir sees ‘very, very tight’ oil market
Global oil markets remain very tight and heavily backwardated as demand returns to pre-pandemic levels, the chief executive officer of global trading firm Trafigura said on Tuesday.
“We are seeing a very, very tight oil market but it’s not artificially tight because of what OPEC is doing. Demand is there,” Jeremy Weir said at the FT Commodities Asia Summit.
Global crude benchmark Brent LCOc1 has recovered 60% since the start of the year, trading at above $80 a barrel, as nations ease COVID-19 restrictions while the world’s economy rebounds from the pandemic.
Front-month prices are about $1 higher than those in the second month, a market structure known as backwardation that indicates tight prompt supplies as the Organization of the Petroleum Exporting Countries and their allies continue to restrict production. O/R
“There are some OPEC members that probably can increase supply very quickly,” Weir said.
“I think people need to recognise it’s not a situation where you might just flick the switch and you increase production. There’s a lot of investment, it takes some time to do that,” he said.
“I think we have got a bit of an issue looming on oil prices on a long-term basis, I think $100+ on oil … (is) very possible.”
Weir also warned about significant deficit in some commodities, such as cobalt, nickel and copper as global demand rises for electric vehicle batteries and renewable energy.
“Some of these metals are just not going to be available due to the increase in demand,” he said.
“We’ve already see a significant increase in demand not just from China but also from the U.S. and from Europe and we expect to see significant deficits in some commodities.”
Copper inventories in warehouses of the London Metal Exchange and the Shanghai Futures Exchange are hovering around multi-year low levels. LME cash copper premium over the three-month contract MCU0-3 leapt to a record on Oct. 18, a few days after LME on-warrant stocks dropped to their lowest since 1998. MET/L
“Unless we see a major meltdown in industrial production out of China, I think we got a pretty critical situation with respect to copper prices,” the executive said.
Weir said cobalt, nickel supplies could also become problematic unless companies are able to commission mines more efficiently without compromising safety standards.
He added that nickel from certain locations, like Indonesia, for example, has a very high carbon footprint compared with other sulphide-based producers.
Trafigura is investing in carbon capture and storage and Weir said carbon trading could become Trafigura’s third pillar of business after the business was launched in April.
“What’s interesting is that people shy away from decarbonisation, and I think it’s a great challenge, but also it’s a fantastic business opportunity,” Weir said.
Source: Reuters (Reporting by Koustav Samanta and Florence Tan in Singapore, Mohi Narayan in New Delhi and Mai Nguyen in Hanoi; Editing by Christian Schmollinger & Simon Cameron-Moore)