U.S.

Doubles Oil Exports In 2018

The United States nearly doubled its oil exports in 2018, the Energy Information Administration
reporting on Monday, from 1.2 million barrels per day in 2017.
The 2.0 million barrels of oil per day exported in 2018 was in line with increased oil production,
which averaged 10.9 million barrels per day last year, and was made possible by changes to the
Louisiana Offshore Oil Port (LOOP) which allowed it to load VLCCs.
The changes to LOOP and to the sheer volume of exports were not the only changes for the US
crude oil industry. The destination of this oil shifted in 2018 as well, and even shifted within the
year as the trade row between China and the United States took hold.
Overall, Canada remained the largest buyer of US oil in 2018, at 19% of all oil exports,
according to EIA data. During the first half of 2018, the largest buyer of US crude oil was
China, averaging 376,000 barrels per day. Due to the trade row, however, US oil exports to China
fell to an average of just 83,000 barrels per day in the second half, after seeing zero exports to
China in the months of August, September, and October.

The Case for 100$ Oil

The odds of an oil price spike this year are much higher than the prevailing consensus in the
market, according to a new report from Bank of America Merrill Lynch.
The oil market has been tightening rapidly this year, due to OPEC+ cuts taking supply off of the
market, outages in Iran and Venezuela, and a slowdown in U.S. shale. But forthcoming
regulations from the International Maritime Organization (IMO) could provide an additional jolt,
particularly as global inventories decline against the backdrop of a tightening market.
“Now, with distillate inventories at the low end of the range, we see an analogy to 2007/08 when
the world run out of diesel refining capacity,” Bank of America Merrill Lynch wrote in a note on
April 12. “Back then, as Saudi Arabia lifted heavy crude production to meet rising global demand
for distillates, diesel-to-bunker fuel spreads blew out and so did light-heavy crude spreads. A
similar situation could develop over the coming months as ship owners temporarily up their
distillate burn to transition out of high sulphur into ultra low sulpur bunker fuel due to the new
IMO2020 rules.”
There are important differences between today and the price spike of 2008, Bank of America
notes, including greater spare capacity in 2019, an additional 1.1 million barrels per day (mb/d)
of refining capacity set to come online, and the expectation that U.S. shale could quickly add
supply in the event of higher oil prices. “Still, unlike the gradual tightening in diesel markets of
2007/08, the world faces a major one-off jump in distillate demand,” Bank of America argues,
referring to worldwide regulations on marine fuels set to take effect at the start of 2020.
The rules lower the limit of sulfur concentration in marine fuels from 3.5 percent to just 0.5
percent, which will force shipowners to switch away from heavy fuel oils. Instead, the
alternatives include scrubbing technology and a greater use of low-sulfur fuels, including
distillates.Related: The Tipping Point In Trump’s Quest For Energy Dominance
Bank of America says that the regulations could push up distillate demand by 1.1 mb/d year-on-
year, which comes on top of the 0.5 mb/d annual trend growth rate, and also on top of the
cyclical high during winter. Higher distillate demand could push up crude oil prices as refiners
race to turn crude into distillates. “About 60% of the average crude barrel can be turned into
distillate with the right refining toolkit. But that figure drops below 50% for heavy oil, potentially
curbing supply,” Bank of America wrote.
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The bottom line is that there is a chance that oil prices rise much higher this year. “In our view,
the risk of a Brent crude oil price spike is significantly higher than options markets suggest,”
Bank of America warned.

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There are plenty of factors that could head off a price spike, including higher U.S. shale
production, an economic slowdown, a decision by OPEC+ to abandon the cuts, a decision by the
U.S. to extend waivers on Iran sanctions, or a release of oil from the U.S. strategic petroleum
reserve, just to name a few. “However, as shippers transition to IMO2020, a cyclical upturn led by
trade combined with a cold winter could result in the largest ever surge in distillate demand. If
we add a weaker dollar to the mix, we have all the ingredients for a spike in crude oil prices,”
Bank of America said.Related: Trump’s New Ambassador Scrambles To Salvage Relationship With
Riyadh
The investment bank was skeptical that U.S. shale could fill the gap, at least in the short run.
Capital discipline has already led to a slowdown, and the industry could need higher prices for
longer-dated futures in order to really incentivize new drilling. In any event, it will also take time
for the industry to respond, which means that “rising oil prices today will only begin to affect oil
production in 4Q19 and 2020,” the bank noted. As such, while U.S. shale could add new supply
and keep global oil prices in check, it may arrive a little late to avoid a price spike.
Bank of America said that the Brent options market only implies a 2 percent chance that Brent
spikes to $100 per barrel. The bank says everyone might be underestimating these odds. The
“massive surge in distillate demand” later this year could “potentially push oil prices above $100
per barrel,” the bank concluded.

The U.S. Is Losing Influence In The World’s Biggest Oil Region

Egyptian President Abdul Fatah al-Sisi’s visit to the White House on April 9, 2019, resulted in one
of the worst setbacks for U.S. Middle Eastern policy under the Donald Trump Administration.

What was supposed to be a fence-mending exercise between the two countries essentially ended
many of the meaningful strategic aspects of the U.S.-Egyptian relationship, despite the fact that
the public appearances between the two presidents appeared to be cordial. There have been
significant areas of difference and frustration between Egypt and the US, even since the Trump
Administration came to office, but there was at least a concerted effort on both sides to work
harmoniously.

There has also been good personal chemistry between the two presidents since Trump ended
what the Egyptians had regarded as a disastrous period under Barack Obama. President Sisi had
essentially broken off strategic relations with the U.S. during the Obama Administration tenure in
order to resist Obama’s insistence that the Muslim Brotherhood play a larger role in Egyptian
politics.

The question now is who in the Washington bureaucracy will take the blame for pushing Trump to
insist on actions by al-Sisi which any fundamental analysis of the situation points to being
infeasible and against Egypt’s view of its own strategic interests.

That is not to say that Egypt wishes to end cordiality and cooperation between Washington and
Cairo; it does not. But certain battle lines have been drawn in the greater Middle East, and Cairo
and the U.S. are not altogether on the same side. Both sides will need to undertake significant,
careful action to put relations back on a positive path before the break becomes calcified.

The failure on this occasion lay at the door of the U.S. for failing to realize that Washington now
needs Egypt more than Egypt needs the U.S.

Trump, had, during his White House meeting with Pres. al-Sisi, insisted that Cairo break off or
downplay its relations with the People’s Republic of China (PRC), and the Russian Federation (RF),
which Cairo feels it cannot do. The PRC and RF are already firmly entrenched in the Red

2
Sea/Eastern Mediterranean in ways which offer Cairo some benefits without appearing to force
Egypt into taking sides in regional disputes.
Related: Traders In Limbo As Mounting Uncertainty Pulls Oil In All Directions

Trump also hoped the Sisi meeting would re-invigorate his idea of an “Arab NATO”, the proposed
Middle East Security Alliance (MESA), raised at the beginning of his Presidency. MESA would, U.S.
planners believed, align the Gulf Arab states — particularly Saudi Arabia — with Jordan and Egypt
to strategically balance and oppose Iran. Cairo cannot realistically support such a position in
black and white terms (neither can Qatar or Jordan, at this stage). Cairo is actually open to
improved relations with Iran, particularly because the Egyptian Government feels less than
secure that the current Saudi regime is stable and reliable.

Trump, during the White House meeting, strenuously attempted to support Saudi Arabia and
MbS, but received strong pushback from al-Sisi on that account.

The measure of Egypt’s rejection of the U.S. pressure was indicated when al-Sisi, immediately
upon returning to Cairo on April 10, 2019, formally withdrew Egypt from MESA. Egypt had very
deliberately not sent a delegation to the MESA summit in Riyadh on April 8, 2019.

This was as direct a response as could be delivered to the U.S. by Egypt.

Despite the realities that Qatar and Jordan have (for different reasons) felt that they must align
with the new Middle East Entente (Turkey, Iran, and Qatar), that April 8, 2019, MESA summit
included Saudi Arabia, the United States, the United Arab Emirates, Bahrain, Kuwait, Oman,
Qatar, and Jordan. Significantly, it did not include Iraq or Syria.

Qatar’s participation was particularly notable, given the fact that Qatar has been the subject of
massive efforts by Saudi Arabia to ostracize it from the region, and because (partly as a result of
that Saudi-led effort) Qatar had recently teamed up with Turkey and Iran to form a new “Middle
Eastern Entente”.

At the White House meeting, Trump urged Cairo to abandon its support for Khalifa Haftar in
Libya, whose Libyan National Army (LNA) forces were, at that time, poised outside the Libyan
capital, Tripoli, to take the city, and with it control of the central bank and the Libyan National Oil
Company. President al-Sisi steadfastly refused to entertain the abandonment of Haftar as his
approach to oppose not only the jihadist Sunni factions in Libya aligned with al-Qaida or DI’ISH,
but also to oppose Turkish/Muslim Brotherhood attempts to dominate a future Libyan
Government aligned with the approach of al-Sisi.

It is not insignificant that France, the United Arab Emirates, and more recently Saudi Arabia, also
support General Haftar. And France and the UAE have been major pillars of financial and military
support for Egypt since the Egyptian break with the U.S. This is not to say that Saudi Arabia —
President Trump’s most significant ally in the Arab world — has not also been important as a
supporter of Egypt; it has. In fact, it may have been Saudi Arabia which was, as a major buyer of
French defense goods, responsible for financing the French role in the reconstruction of the
Ethiopian Navy.

The U.S. failings with regard to forming a stable government in post-Gadhafi Libya go back to the
Obama Administration’s policies, subsequently embraced by the Trump Administration’s State
Department, which has very pointedly refused to consider the 1951 UN-sanctioned constitution
of Libya which would have ended the inter-tribal rivalries unleashed by the 1969 Gadhafi coup
against King Idris I, of Libya.

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President Trump, in the public aspects of the meeting with al-Sisi, also pushed Egypt on issues of
alleged human rights violations, a criticism which the Egyptian Government feels is unfair and
hypocritical, especially given that the U.S. did not voice complaints over the rapid slide in the
condition of the Egyptian population under Mohammed Morsi, who came into office during the
Obama Administration.

There is little question that the Trump-Sisi meeting has resulted in a significant weakening of the
U.S. in the region, while France, the PRC, the RF, and, indirectly, Iran all benefited. Egypt has
seen its regional influence strengthened and now draws support from a number of different
sources, both regional and extra-regional, and appears to have moved beyond the eras of British,
Soviet, or U.S. subordination.

This could well be a watershed moment for Egypt after more than two millennia of external
domination by Ptolemaic (Hellenic), Arab, French, British, and other forces. President al-Sisi now
seems determined to restore the country’s “Egyptian” identity.

Meanwhile, the removal of Egypt from the Middle East Strategic Alliance may doom MESA to
perpetual weakness. Egypt’s lack of participation undermines the one great initiative which the
U.S. had hoped to use to regain some influence in the region, an initiative that has been further
undermined by the creation of the new Middle East Entente (dominated by Iran, Turkey, and
Qatar, with Syria, Oman, and Jordan playing subordinate parts).

Egypt’s growing strength, and that of Iran (in the Middle East Entente), suggests we may be
entering an era in which local powers once again emerge as the dominant forces of the region.
Turkey’s hope to be a key component in that dynamic, however, is at best problematic: the
Turkish economy is now so weakened that — alone among the aspirant powers of Egypt, Iran,
and Turkey — Ankara is rapidly becoming a vassal state of Moscow.

This new divide between Washington and Cairo does not mean that the two can no longer work
together on some issues. Suez Canal security is critical to the U.S., for example, and the US has
thrown its weight behind the Eastern Mediterranean linkages between Egypt, Israel, Cyprus, and
Greece on the exploitation of major offshore gas reserves. Now, the U.S. and Egypt could
conceivably re-emerge as allies, rather than as senior and junior partners in a marriage which
forbids other relations on the part of the junior partner.

Two major Washington bureaucratic imperatives, however, seemed to conspire to cause Trump to
push established approaches of both the State Department and National Security Advisor John
Bolton. The Bolton approach, to directly punish Iran as harshly as possible, clearly grated on
President al-Sisi, and the unrealistic belief of State (and the White House) that an Arab,
predominantly Sunni, coalition could be mobilized to effectively counter Iran seems to be
struggling.

The ongoing belief in the U.S. that Egypt’s defenses are existentially dependent on Washington is
something which Cairo cannot comprehend. Washington policy thinking is that Cairo would obey
U.S. diktat because it needed spare parts for U.S.-supplied equipment, or because it so needed
the relatively small contribution offered by the Camp David Accord aid payments. But, as I noted
on April 10, 1972, in Defense Newsletter (the predecessor to Defense & Foreign Affairs),
President Anwar as-Sadat was prepared to remove the Soviets from Egypt to achieve greater
independence, even though the U.S. at that time felt that Egypt could never defend itself without
Soviet support for Egyptian military hardware. Similarly, when President al-Sisi walked away from
the direct threats from Barack Obama and risked cutting off U.S. spare parts support for U.S.-
supplied defense systems, the U.S. felt that Egypt could not survive without the U.S.
Related: Environmentalists’ “Bomb Train” Concerns Are Overblown
4
Cairo successfully walked away from the U.S. as it walked away from the Soviets. And the U.S.
institutions of strategic policy still have not digested that reality.

Clearly, President Trump’s desire to support MbS and Saudi Arabia (and to oppose Iran) played a
key role, as well, in his desire to win support from al-Sisi. But al-Sisi has always had a more
nuanced view of the threats posed by further isolating Iran, or, more pointedly, driving it into
alliance with Turkey. Growing U.S. concerns over Turkey’s moves away from the West were not
seen in the light of Egypt’s concerns over Turkey’s attempts to create a role for itself in North
Africa, the Levant, and the Red Sea/Horn, including Sudan. All against Egyptian interests.

Washington has not fully come to terms with the reality that the great strategic rivalry in the
region is between Turkey and Egypt. They are, essentially, at war, which is why, for example,
Egypt and Israel cooperate so extensively to constrain HAMAS in Gaza and in Egyptian Sinai.
Egypt also takes a longer view on Iran than the U.S. or Israel do. Egypt sees the Iranian/Persian
revival (normalization, as the clerics’ “revolution” matures back to Persian normalcy over the
coming decade or so) as the return to a major role in the region for Iran. President al-Sisi
understands history and geopolitics, and those who did in Washington have now passed out of
influence in the new era of reactive politics.

In particular, Cairo can feel no added security from the removal on April 10, 2019, of Sudanese
President Omar al-Bashir, and the installation of the Defense Minister Ahmed ibn Auf, as chief of
a new Military Council, with Army Chief of Staff Kamal Abdelmarouf as deputy head of the
Council. For the Egyptian Government — and to the Sudanese opposition — this will have
seemed like the Islamist military leadership of Sudan replacing al-Bashir because his removal
was inevitable. But the pro-Muslim Brotherhood — supported by Turkey — military has remained
in place, something which the opposition and Cairo oppose.
A nuanced and unstable pattern is emerging, and, from the U.S. standpoint, President Donald
Trump has been poorly advised as to how to benefit from it. A similar case could be made for U.S.
failures in the Pakistan and Central Asian situations, largely because of the inherited linear
thinking within the State Dept., Defense Dept., the U.S. Intelligence Community, and media. So
while a new “bipolar world” is emerging between the US and the People’s Republic of China,
there is also a new multipolar world emerging, with powers such as Iran, Egypt, and Ethiopia
stepping into a new matrix.
This New Oil Hotspot Is Replacing Venezuelan Crude
The U.S. sanctions on Venezuela’s oil industry have tightened the global heavy to medium crude
oil market, sending oil buyers scrambling for alternatives to the heavy Venezuelan oil.

Refiners in the United States and Europe have started to replace Venezuela’s oil with some of the
crudes produced closer to their home, while the world’s largest oil importer and key demand
growth driver, China, has been also looking to Venezuela’s Latin American neighbors to fill in
some of the gap.

Brazil is emerging as a big winner from the sanctions on Venezuela—it boosted its oil exports to
China in the first quarter of 2019 and is expected to further increase its sales and market share
in the world’s top crude importer, since Brazil, together with the United States, is one of the few
non-OPEC members capable of increasing production significantly in the near term, IHS Markit
says.

The fly in the ointment, however, is that Brazil has shown volatility in its oil production and
exports in recent months, with figures for some months coming in below analyst estimates.
If Brazil were to deliver on the production growth that major organizations continue to predict, it
could gain a foothold on the most prized market for every oil producing nation—China.
5
With sanctioned Venezuelan oil, the first alternative for buyers would naturally be more medium
and heavy crude from OPEC, mostly from its Middle Eastern producers. However, Middle Eastern
producers are cutting mostly those grades as part of the OPEC+ production cuts, while Iran’s
heavy oil remains stymied under U.S. sanctions. Canada has its own production issues with the
takeaway capacity constraints and can’t fully capitalize on the shortage of heavier grades amid
the U.S. sanctions on Venezuela.
So China has increased imports from Brazil.
Brazil’s state-held oil firm Petrobras has said that China absorbed two thirds of its crude oil
exports last year, IHS Markit recalls.
According to data from IHS Markit, Brazil exported more than 500,000 bpd directly to China in Q1
2019, Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, at IHS Markit, writes.

Including shipments to other parts of Asia later re-exported to China, total Brazilian exports to
China reached around 660,000 bpd in the first quarter. Brazil’s exports to China are estimated to
have jumped by nearly 50 percent on the year in Q1, according to IHS Markit.

Think Tank: Mexico’s New Refinery Already Doomed

A Mexican think tank has declared that Pemex’s newest refinery is doomed in a grim analysis
released this month. The Mexican Institute for Competitiveness (Instituto Mexicano para la
Competitividad, or IMCO for short) released a damning financial analysis of the Dos Bocas
refinery, currently being developed in Tabasco by state-owned oil company Petróleos Mexicanos
(Pemex), which gave the project a mere 2 percent chance of success. Highlighting the disastrous
findings of the financial analysis, a report accompanying the results warns that if Mexico goes
through with the Dos Bocas project, it “could generate a serious crisis for the public finances of
the whole country.”

The Dos Bocas project is being backed strongly by Mexican president Andrés Manuel López
Obrador and is to be built in his home state of Tabasco. The newly elected leftist president ran on
a platform of “energy sovereignty” for Mexico and a large-scale campaign to bail out Pemex,
which has seen many years of decline in its once-booming production partnered with
exponentially ballooning debt. Pemex has not only seen a nosedive in its oil extraction and
refining, it has also suffered a 42 percent cut in natural gas production since 2009, a major blow
to an all-important segment of the nation’s power and manufacturing sectors.

The Dos Bocas refinery is an ambitious and pricey project--the first refinery of its size to be built
in North America since 1977--and is projected to be completed in four years with a price tag to
the tune of 160-billion-pesos (US $8.5-billion). In their analysis, IMCO smartly points out that
regional history shows us that that four-year timeline and 160-billion-peso budget are both likely
to be overly optimistic estimates on the part of the Mexican government.
Related: Artificial Intelligence Is Transforming Oil Trade

The IMCO analysis created a financial model for the Dos Bocas refinery and ran it through a
Monte Carlo simulation in order to study 30,000 potential development scenarios. The study
included variable such as refining margins, total investment, construction time and operating
costs, and concluded that a whopping 98 percent of the scenarios studied, the refinery would
produce more cost than benefit, making it an almost certain financial and strategic failure for the
already struggling and long-mismanaged Pemex.

Based on the think tank’s financial analysis, IMCO argues that the ill-fated project should be
scrapped altogether, and the funds diverted into exploration and production, a much more
profitable segment of the industry, instead. As the “least profitable” segment of the oil and gas
industry, refining should not be the focus for a company with as much cash flow issues as
6
Pemex. In addition to redirecting investment away from Dos Bocas and into E&P, IMCO
recommends that López Obrador and Pemex invest more money and attention into improving
efficiency and earnings in the company’s six existing refineries.

Pemex’s existing refineries operated at a record-low utilization rate in 2017, with an average of
19.6 percent utilization. According to IMCO’s report, this “indicates that currently there is
sufficient installed capacity to increase production of refined products, however,
underinvestment in the last 18 years in the national refining system infrastructure has caused
the current refineries to not have the necessary productivity levels to make them profitable.”
Related: Brent Could Hit $80 This Summer As Hedge Funds Lose Steam

López Obrador’s continued support for the project has added to existing public concern and
disagreement as well as discontent within his own administration and among Pemex investors. In
a particularly messy exchange, Mexico’s deputy finance minister Arturo Herrera issued public
assurances that the president would be heeding financial warnings and pressing pause on the
Dos Bocas project, but was promptly shut down by López Obrador himself, who has doubled
down on the refinery’s development.

While politicians exchange barbs and op-eds swirl about López Obrador’s competence and
divisiveness, the IMCO report wastes no words on false equivalence: “Pemex is on the edge of
the abyss” the report warns, “and its performance is intimately related to the country’s public
finances. It is urgent that the decisions with respect to this company be taken based on evidence
and criteria of profitability, not political agendas.”

Did Russia Just Call The End of The OPEC Deal?

OPEC and heavyweight Russia may fight America for its share of the oil market, Russia’s Finance
Minister Anton Siluanov told TASS on Saturday, even if it means quitting the OPEC deal and
lowered oil prices.

OPEC and Russia have tapered oil production according to the agreed upon production cut deal,
but the United States continues to increase its production and is picking up market share in the
process—market share formerly held by OPEC members and the other non-OPEC signatories to
the deal including Russia.
Any failure in the production cut deal, however, will have a negative impact on prices, and could
theoretically plunge prices into the $40 per barrel territory. This, in turn, would squeeze US oil
producers and hurt new investments, Siluanov said.
“(If the deal is abandoned) the oil prices will go down, then the new investments will shrink,
American output will be lower, because the production cost for shale oil is higher than for
traditional output.”

Siluanov’s comments came in tandem with warnings of a looming global economic recession.
“The risks of an upcoming global recession are very high,” the Finance Minister said. “We are
ready for a change in global energy prices – we have prepared the budget, the reserves, the
balance of payments. We have created this kind of system.”

Russia has been the wildcard in the OPEC+ production cut deal, and has long sent mixed
messages regarding their all-in-ness of the deal. And as US production increases and its market
share expanding, OPEC’s clout is waning, highlighting the importance of its relationship with
Russia.

OPEC’s production has fallen to levels below its commitment. The United States, however,
continues to increase production, and currently sits at an all-time-high of 12.2 million bpd,
7
according to the EIA. Before the original production cut deal was established in December 2016,
US oil production sat at 8.77 million bpd—a significant increase that undoubtably puts pressure
on any of the countries who have tapered production.

President Vladimir Putin on Tuesday, however, assured markets that Russia would continue its
cooperation with OPEC. “We will closely monitor the market, but we will continue cooperation
with OPEC,” Putin told TASS, following it up with a more ambiguous chaser.
“If the market situation develops in such a way that reserves increase dramatically, or the US
seizes Venezuelan oil and quickly increases its accessibility on the world markets, or something
positive happens in Libya in terms of the political situation, and Libya enters the global market,
or someone thinks that it is necessary to stop putting pressure on Iran and Iran enters the
market with additional volumes, then we will have to take all this into account and make the
appropriate decision."
Under the terms of the production cut deal forged with OPEC, Russia agreed to shave 230,000
bpd to reach 11.191 million bpd.

Artificial Intelligence Is Transforming Oil Trade

Artificial intelligence has been making inroads into the oil and gas industry for a while now after
the industry realized all the benefits it could reap from the deployment of these technologies.
Now, it has begun changing oil and gas trading as well.
First of all, it bears noting the term artificial intelligence has developed into an umbrella term for
a host of predictive and analytical technologies that are a far cry from the average layman’s idea
of AI, that is, machines capable of independent thought. We are not there yet. Yet the technology
has advanced sufficiently to begin transforming the oil and gas industry, including the trade of
these commodities and products.

For now, the space of AI-enabled energy trading providers is relatively empty. One notable recent
addition to it was OilX, an oiltech startup that provides traders with real-time oil analytics based
on a combination of satellite tracking data and reports from various official organizations,
including customs, JODI, and statistics agencies.

Thanks to AI, the OilX platform can process and offer traders a lot more comprehensive and
hence more reliable oil fundamentals data in a fraction of the time traditional oil supply and
demand analysis takes.
Speed and accuracy are what, according to OilX’s founders, makes the platform unique and
these two features also highlight the top priorities of modern-day traders generally. Yet this is
only a nascent market with a huge potential.

As OilX’s chief executive Florian Thaler told Oilprice, “Theoretically, AI-enabled solutions can be
found everywhere in a trading organisation, from front to middle to back office in trading
operations. Ranging from analytics, trade execution, risk management, HR. We believe that the
change is coming from a series of small, highly focused and specialized solutions which – when
put together – form a comprehensive solution.”

But AI is encroaching on traditional practices in price forecasting as well. This is hardly a surprise
given one of the main advantages of algorithms over humans is in the superior predictive
capabilities of the former.
"Price suggestion has clearly become a key factor [for AI] where for large trades and complex
derivatives it used to take a while to price trades," a senior Citi executive told S&P Global Platts
at an industry event last November. AI is already helping traders make better decisions based on
price forecasts made by the algorithms, Sandeep Arora said.
And it goes beyond just price forecasts. Artificial intelligence is also being used to help humans
learn how to better predict prices.
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"We are not so much interested in predicting prices, we are interested in developing better
theories that can help us make better predictions of prices," said the head of machine learning
Marcos Lopex de Prado at the same event. In other words, machines are not replacing people, at
least in the price forecast field, but potentially helping people become more accurate in their
price predictions.
What’s in store for this nascent segment of the energy industry for the future? Probably bigger
and better things as tends to happen with every technology that has proven its worth for an
industry. Thanks to the advantages and benefits it offers, AI technology will likely spread to more
commodity markets, Thaler said.
In that, the digital newcomers will continue to draw on the established expertise of the energy
industry to come up with better trading decisions rather than trying to confront and overpower it.
“In terms of evolution,” said Thaler, “we see all commodity markets to move further up into the
direction how we see gas and power markets trading today.”
Crude oil prices are affecting demand for the commodity negatively, the International Energy
Agency’s head Fatih Birol told S&P Global Platts in an interview.
"The higher oil price environment may, if they stay around this level, also have an impact...put
some downward pressure under demand growth," Birol said. The warning follows the release of
IEA’s latest Oil Market Report, in which the authority kept its oil demand growth projections for
this year unchanged at 1.4 million bpd.

The agency’s boss noted that Brent over US$70 a barrel is affecting demand the most in the
emerging markets that account for the most of demand growth, including China and India, but
also the United States.
"So it will not be a surprise if we are to revise our demand numbers in the next edition of the oil
market report if the prices remain at these levels," he told S&P Global Platts.
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For those that are watching oil price movements and the reactions of the world’s largest
importers, this is not news. After a slump in the fourth quarter of last year, Brent has rebounded
by about 40 percent, trading above US$70 at the moment.

Prices were pushed up by the entry into effect of the latest OPEC+ round of production cuts with
Saudi Arabia leading the charge and cutting considerably more than it had agreed to, yet again
in a bid to raise prices to levels it feels more comfortable with. However, these are levels that
India and China do not feel equally comfortable with.India relies on exports for more than 80
percent of its oil consumption and China is more dependent on imports than it would like to be.
So, it is no wonder that the climb in prices “will definitely hurt oil demand if it soared especially
in the important demand growth centers such as India," according to Birol.