An established order in the global petroleum domain is often helpful in predicting certain outcomes and consequences. The uniqueness of petroleum makes it a commodity whose distribution and logistics rarely depend on market forces alone. The precarious industry setting, hence, invites much speculation and conjecture. This speculative behaviour has long been the reason for the oscillating outlook of the industry. Over time, these speculations and postulations influence much more than temporary results, rather they alter long term discourse. Recently, there has been a defining yet subtle shift of the petroleum epicentre from the West to the East. With rising independent Chinese demand, and the corresponding rise of American energy independence, and the accompanying face off between conventional oil and shale hydrocarbons, the change was inevitable.
The prime function of OPEC is to put forward a collective consensus regarding pricing or policies on behalf of the producers to the importers. The structural organisation of OPEC has recently changed drastically. Venezuela, the founding member of OPEC is in the midst of a political turmoil, reducing its exports to bare minimum. Iraq, Iran and Libya have significantly reduced output due to civil turmoil, corruption or imposed sanctions. The gap is tentatively filled with exports from Saudi Arabia and Kuwait. Qatar renounced its membership of OPEC late last year as Doha’s ambition to retain its LNG throne took precedence over the organisations collective mandate. Ergo, Saudi Arabia pumped record number of barrels of oil during the last quarter of 2018. The OPEC now then seems nothing more of a facade to provide Saudi Arabia with legitimate authority regarding energy matters in the Gulf.
The energy situation in Europe differs. The drive towards renewables is higher now than ever before. Governments and political parties are presenting manifestos which entails seeking 100% sustainable if not renewable energy, by 2030. An increase in renewable energy production has crunched the massive demand growth for oil —at least in Europe. Although the investment and attention towards Nord Storm 2 hints at at least some fossil fuel dependence, energy corporations in Europe have recently bid themselves in the race for renewables. The sustainable and progressive energy model has had a very positive public response. BP, Equinox, Shell, and Eni have all presented an intention—by substantial investment—to move to a renewable energy model.
Russia with its expansive gas resource would chose to reach out to additional markets, considering the existing energy saturation in Europe. Although the North American and the Pacific market is predominant for gas export, a feasible midstream infrastructure does not currently exist in Siberia. The proposed East Siberian pipelines are still a considerable time away from reaching operational standards. The markets Russia is currently pursing is Central and East Asia. Gazprom—the Russian gas giant—stated last year that the pipeline to China is almost done. The completion of this highly anticipated pipeline would further increase the strategic importance of Asia in terms of energy.
North America has seen the biggest shift in the energy industry over the last decade. the shale revolution has introduced mass shale oil reserves which are now feasible to exploit. USA oil production stands at a staggering 12 million bpd. This number makes the US one of the top oil producing nations in the world, but a considerable chunk of the production is internalised to meet local demand and also, in long term, gain energy independence from the Middle East. The Canadian pipelines—TransMountain Expansion— approval has further highlighted the possible notion of North American energy independence. With north American interest decreasing in international petroleum geo-politics, there is a power and regulatory vacuum created in the global oil market. The power is bound to fall in East Asia.
For the top producers: OPEC and Russia, the East Asian markets is the long term fortune. The possibility of the retraction of the PetroDollar is also being considered to streamline imports from China, Japan and India. China and India being considered the new hub of spot oil trading, will shift the oil paradigm from West to East in the near future. The trade war between China and the US prompted China to introduce its Yen as the reserve currency for oil trading as an alternative to the US dollar for the first time in history.
The prediction of the price or fluctuations on the price of hydrocarbons is contingent on many latent aspects, and is hence futile. Trying to prediction the general trend of the oil market trajectory is more practical. A steady shift in the oil paradigm from West to East would prompt new challenges and generate newer opportunities.