Tuesday, September 1, 2015

Vitol, World's Largest Oil Trader, Sees $40-60 Prices Next Year

Brent 50.52 -3.63; WTI $45.74 -3.46.
From Bloomberg via gCaptain:

World’s Top Oil Trader Sees $40-$60 a Barrel in 2016
Oil prices will remain at $40 to $60 a barrel into 2016 as rising crude supplies overwhelm demand, according to the world’s largest independent oil trader. 
The oil-production surplus means stockpiles will keep expanding for “the next few quarters” and excess inventories won’t clear until 2017 at the earliest, Vitol Group BV Chief Executive Officer Ian Taylor said in an interview. 
The forecast, if realized, would mean oil-producing countries and the energy industry would need to weather a longer downturn than occurred after the financial crisis of 2008-2009, when prices fell as low as $36 a barrel, but recovered to almost $80 within a year. 
“Oil prices will be stuck between $40 and $60 a barrel this year and in 2016,” Taylor said. “I don’t see much reason to go higher and we can go lower” because the physical crude oil market is “quite weak” right now. 
Vitol is the world’s largest independent oil trading house, handling more than five million barrels a day of crude and refined products — enough to cover the needs of Germany, France and Spain together. 
Brent crude, the global benchmark, dropped to a six-year low of $42.23 a barrel on Aug. 24, down from more than $100 a barrel a year ago. While prices subsequently rebounded to trade at $52.72 at 12:19 p.m. on the London-based ICE Futures Europe exchange Tuesday, they remain 49 percent lower than a year- earlier. 
Crude plunged after the Organization of Petroleum Exporting Countries in November diverged from its traditional policy of adjusting supply to manage prices, announcing it would maintain output to defend its position in the market. After an almost 40 percent drop in prices, the group ratified that decision in June. It is scheduled to meet again Dec. 4. 
OPEC effectively began a price war against higher-cost producers including U.S. shale operations, the North Sea and ultra-deep-water discoveries in Brazil and Angola. So far, however, “non-OPEC production is proving more resilient than expected,” Taylor said.
Daily oil production outside OPEC will grow this year by 1.1 million barrels, compared with an expansion of 2.4 million in 2014, the International Energy Agency said Aug. 12. Non-OPEC supply is set to contract by 200,000 barrels per day in 2016, the first drop since 2008, it said. 
Chinese DemandTaylor, a 59-year-old trader-cum-executive who started his career at Royal Dutch Shell Plc in the late 1970s, said oil demand growth was the only bullish factor in the market. Global daily consumption will increase this year and next by about 1.5 million barrels and “we are not seeing any dramatic drop in demand in China,” he said. 
While the prices slump has hurt oil producers, independent traders such as Vitol and its competitors Trafigura Beheer BV, Glencore Plc, Gunvor Group Ltd. and Mercuria Energy Group Ltd. are profiting from the increase in volatility. The Chicago Board Options Exchange Crude Oil Volatility Index, a measure of fluctuations in prices, averaged 44.28 so far this year, more than double the level in 2014. 
These companies also benefit from a market structure called contango — where forward prices are higher than current costs. This allows traders to buy oil, store it in tanks and lock in a higher selling price for a later date using derivatives. 
Contango Trade“Contango opportunities are emerging, particularly in products,” Taylor said. Onshore inventories are currently expanding at a rate of 1.5 million barrels a day, although the price incentive is not strong enough to store fuel offshore in tankers, he said....MORE
See Aug. 23's "Oil Price Decline May Be Due For a (Brief) Pause" for one of the signs that spooked the bears and got us on the right side of the upmove before yesterday's "Oil: Stephen Schork on the Change in the Market":
Sorry about the paucity of posts, reality keeps intruding.All things being equal, and of course they never are, $50 would be a bit pricey for the immediate supply/demand picture and a dandy spot to get short again. Maybe even a lower entry but see second piece below.October WTI $48.86 up $3.64.
It top-ticked at $49.33 before turning.