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Scant hope of an imminent rebound in prices

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The Davos of energy

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By Ed Crooks: February 26, 2016

This week many of the biggest names in the worlds of oil, gas and power were gathered at IHS CeraWeek in Houston, the annual conference that is regularly  – and accurately – described as “the Davos of energy” or  – more questionably – as “the Burning Man of energy”. It should come as no surprise that it was this event that generated most of the week’s big stories.

The star of the show was Ali al-Naimi, Saudi Arabia’s formidable oil minister, who was making his first appearance at the conference since 2009. It might have been expected to be a case of Daniel in the lions’ den. Saudi Arabia is seen by many in the industry as the architect of their troubles, because of Mr Naimi’s refusal to cut production to attempt to support prices. As it turned out, though, he won over the crowd very quickly, delivering a speech that included both a convincing explanation of his strategy, and a few pretty decent jokes.

His central message required no reading between the lines. As he put it, in so many words, an oil output cut from Saudi Arabia and other countries “is not going to happen”. Hopes that the agreement not to raise production that was reached between Saudi Arabia and Russia earlier this month would lead to more decisive action have been put on ice for the time being.

With no prospect of the Saudis imminently riding to the rescue, and , US and European oil companies have been getting used to the idea that they should aim to be profitable at $50 oil, rather than hoping to get back to $100.

The Wall Street Journal suggested oil executives were taking a confident tone, in spite of the tough conditions. Their message: “blood may be in the water, but it isn’t ours.” Javier Blas at Bloomberg pointed out that with the takeover of BG Group by Royal Dutch Shell, there were now two “ultramajor” listed oil companies, and “this may not be the best time to be bigger than big.”

In another potentially troubling sign for anyone who makes a living selling oil, Bloomberg New Energy Finance published a report arguing that by 2040 electric cars could be displacing 13 million barrels per day of oil consumption worldwide.

There was more positive news for the gas industry, however. Cheniere Energy, the pioneer of liquefied natural gas exports from the US, shipped its first cargo.

Quote of the week

“I joined Aramco as an office boy in 1947. During my seven decades in the industry, I’ve seen oil at under $2 a barrel and at $147, and much volatility in between. I’ve witnessed gluts and scarcity. I’ve seen multiple booms and busts. I’ve even survived peak oil. I think I have a t-shirt somewhere with that on it.”Ali al-Naimi, Minister of Petroleum & Mineral Resources, the Kingdom of Saudi Arabia.

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