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Gunvor and Glencore see crude at $60 as demand growth quickens
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‘Huge’ wave of U.S. shale could push price to to $45: Vitol
The world’s biggest oil traders say crude could rise above $60 a
barrel in a year as demand grows and OPEC keeps cutting. Or it might
fall to $45 as another wave of U.S. shale hits the market.
The disagreement between Glencore Plc,
Gunvor Group Ltd. and Trafigura Group Pte on the bullish side, and
Vitol Group on the other, underscores the huge uncertainty over the key
drivers of oil supply and demand. Growth in consumption has been
stronger than expected this year, helping the recent price gain, but the
speed of the expansion in U.S. output has also proved hard to predict.
A big surprise from one of those competing forces in 2018 could tip markets in either direction.
"Towards the back end of next year we’re going to be well
above $60," Jeremy Weir, chief executive officer of Trafigura, said at
the Oil & Money conference in London on Wednesday. Demand is
growing, oil-field productivity is declining in the U.S. and further
weakening of the dollar will boost commodities, he said.
The
market has certainly tightened up in the last few months, said Vitol
CEO Ian Taylor, but U.S. shale producers still have the ability to drive
down prices, just as they did back in 2014.
Shale Wave
“The
one biggest downside to the market in terms of price is the fact that
we still see a huge amount of incremental production ready to come on
from the States,” Taylor said in a Bloomberg television interview.
“We’re moving more and more oil from the U.S. all the way over into the
Far East and I think that will have an impact. That’s one of the reasons
why in the short term I think I should be a bit bearish.”
In
the past three years -- as U.S. shale production ebbed and flowed,
while the Organization of Petroleum Exporting Countries made historic
shifts in production policy -- the oil price has fallen by half from
above $100 a barrel, rebounded to more than $65, then plunged to a
12-year low of $28. Brent crude, the international benchmark, traded at
$58.14 a barrel at 1:20 p.m. in Hong Kong on Thursday.
In such a volatile environment, traders aren’t the only ones struggling to get a grip on the direction of the market.
The International Energy Agency has increased its estimate
for 2017 oil demand growth in each of the past four months, now
predicting the strongest expansion
in two years. Nevertheless, even if OPEC extends its output cuts
through 2018 it’s unlikely to dramatically reduce the bloated stockpiles
that have weighed on prices, the agency said.
Differing Forecasts
OPEC disagrees, forecasting internally
that the inventory surplus will finally clear by the third quarter of
2018. The big difference in their outlooks comes down to the strength of
supply from outside the producer group. The IEA sees an extra 1.5
million barrels a day of non-OPEC oil production next year, 600,000
above OPEC’s estimate.
Gunvor CEO Torbjoern Toernqvist said he’s
cautiously optimistic about the oil market for the year ahead. OPEC will
probably sustain its production cuts for at least another six months
because Russia and Saudi Arabia have shown they’ll do what’s necessary,
he said in an interview with Bloomberg television.
Unsurprising for seasoned participants in a volatile market, all the traders acknowledged they could be wrong.
"Consensus
is a dangerous thing, because consensus drives decision making and that
decision making will have consequences" that could change the direction
of prices, said Toernqvist. Disruption to supplies from Iraq’s Kurdish
region could potentially push prices above $60 in the very short term,
said Vitol’s Taylor.
"You’ll see oil at $100 again I’m sure,
you’ll see oil at $25 again -- that’s just the nature of the oil price,”
said Alex Beard, global head of oil at Glencore.
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