- Economic malaise weighing on prices, but oil market tight
- Pick up in China demand could quickly change market
- Gas not just a transition fuel in some markets
NEW YORK, June 8 (Reuters) – Concern about the global economy dampened the oil market’s reaction to Saudi Arabia’s pledge to cut supplies and has capped prices this year, a Chevron (CVX.N) executive told Reuters on Thursday.
Benchmark Brent crude prices were just below $76 a barrel on Thursday, little changed from where they were before Saudi Arabia announced on Sunday it would cut 1 million barrels per day from supply in July and possibly beyond.
“You’ve got this macroeconomic sentiment, this general malaise, that says: well, the economy is slowing down,” Colin Parfitt, Chevron’s vice president of midstream, told Reuters on the sidelines of an energy conference.
“Saudi Arabia made a cut of 1 million barrels per day and fundamentally, the market yawned. It’s all about macroeconomic sentiment.”
Softer prices are masking an oil market that is little changed from last year and remains tight, Parfitt said, with little spare capacity to deal with a future rise in demand.
An uptick in economic activity from China and with it fuel demand could quickly change sentiment in the market, he said.
“I could paint the picture this could turn around quite quickly,” Parfitt said.
The natural gas market has tightened since the Ukraine war started because Russia shut in some production when it lost European buyers due to sanctions and damage to pipelines.
Chevron sees Europe as a strong market for short- to medium-term gas demand as Europe seeks to substitute Russian supply, he said.
For longer term demand, Asia is the stronger bet, he added.
Chevron is a big natural gas producer, and pumps more than half its output from the United States and Australia.
Chevron is studying options to sell more gas from its Leviathan field in the Eastern Mediterranean either through regional pipelines or through installing a floating LNG facility, he said. LNG would give more flexibility, allowing Chevron to sell to the strongest market, he added.
While natural gas is seen as a transition fuel in many countries to replace coal as a source of power generation, in some places it may become the long-term fuel of choice, he said.
“People often talk about gas as a transition fuel, but I’m not sure it is,” Parfitt said. “I think it might be a destination fuel. This might be part of the play.”
Reporting by Stephanie Kelly and Simon Webb, editing by Deepa Babington
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