Q&A: Trafigura's Luckock on Opec+, prices, demand

Ben Luckock, co-head of oil trading at Trafigura, spoke to Argus ' Konstantin Rozhnov about the dynamics between Opec+ and US shale producers, peak oil and jet fuel demand.

What does the decision by Opec+ on 4 March mean for the oil market and the US shale sector ? The only thing that really matters in terms of talking about flat price in the oil market is the behaviour of Opec+. We have been saying for a while that for the last 12 months Opec+ has done a fantastic job of firstly stabilising and then helping the market find some level of equilibrium in terms of fair prices for buyers and sellers.

I think you have got an interesting situation where you have almost got the US shale producers acknowledging that as long as they toe the line and do not increase production significantly or too quickly, they have probably got a friend in Opec+ rather than an enemy seeking to hurt them, which was the strategy 18 months or two years ago. The shale participants seem so far to be understanding the quid pro quo in the market at the moment, which is Opec+ will govern the market as long as shale producers toe the line and take their share of the market but not more.

At the moment it seems to be a bargain that both sides seem to be adhering to. But the proof will be as the market continues to rally, how much the exuberance of the independent US producers could be curtailed by the acknowledgement that if they over-produce they may disrupt what is a convenient bargain at the moment for those parties.

Has oil demand peaked yet? I do not think it is looking like it in the oil market. We think we will come out of this terrible Covid situation in an incredibly strong fashion into this summer. We see a lot of good signs of recovery into the summer. Europe can surprise to the upside. Everybody is focused on the US and on whether they are coming out of the lockdown, what their behaviour is like. But we think Europe can really perform through the middle of the year and into the second half of the year and surprise to the upside in terms of their demand.

So, I do not think that oil demand has peaked. We as an industry are pretty poor at predicting anything beyond a few years out. It will depend on where the oil price goes in the coming years. Prices are for sure going higher in the coming months, and it will only incentivise the energy transition. With oil at $40/bl, it is hard to make your renewable projects stack up. But with oil above $80/bl, you have got some more money to play with in terms of providing alternative energy sources.

I think we are in for a very strong run in energy markets in the coming 12 months. But to predict beyond that is really going to be driven by what oil price we get to, because it will determine what alternative energy forms we can afford to have.

Does jet fuel demand remain the biggest question mark this year? Yes, but at the same time refiners and distributors have become very good at finding ways to put jet into the other product groups and finding the way to minimise the jet cut at their plants.

I also think that because of the view that jet fuel is a problem child, it can also be the thing that surprises to the upside. I would not be shocked to find, come the back end of this summer, that you have a jet market that is doing quite well. That can turn around fast.

The industry has spent 12 months working out how to get rid of jet fuel, by either not producing it or putting it into other products. Just be careful about how it goes as people start travelling. We are extremely bullish the amount of movement that will occur some 3-6 months from now, as people get vaccinated and the world opens up.

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