World's biggest oil trader sees $50 floor
Vitol group chief forecasts oil prices will rise
Published 26/04/2015 | 02:30
Vitol Group, the world's biggest independent oil trader, said crude prices won't drop below $50 a barrel for sustained periods - because that's a level some producers need in order to invest in new supply.
"We still subscribe to the likelihood that over time prices still have to go back up again because you still need to invest," said Vitol CEO Ian Taylor last week.
"People won't invest unless they can make the upstream business work - and it's not just US shale; at $50 a barrel it doesn't work."
Oil prices collapsed almost 50pc last year as OPEC kept its output ceiling at about 30 million barrels a day, insisting producers outside the 12-nation group help tackle a surplus. While the US pumped 9.38m barrels a day last week - the highest output for this time of year in at least three decades - its output slid 0.4pc in the past month.
Prices will trade from $50 to $70 a barrel in the second half of this year, Taylor said.
Brent, the global benchmark, ended at $62.08 on the ICE Futures Europe exchange last week. West Texas Intermediate (the US benchmark), was at $55.26.
"US production growth is beginning to slow down and demand is looking quite good for the year, so the combination of all of that means that probably price, if anything, moves up a little bit," Taylor said.
Prices "overreacted to the downside" and the slump is now "behind us," said Torbjorn Tornqvist, the CEO of Gunvor, said at the same Lausanne event. The company handles more than 2.5 million barrels of crude and fuels each day - putting it among the world's five largest independent traders, according to data compiled by Bloomberg.
Prices need to rise to about $80 a barrel in order to attract investment and replace lost production, said Marco Dunand, CEO of Mercuria. Field depletion means markets are losing as much as five million barrels a day from supply that needs to be replaced each year, he said.
Brent has jumped by 16pc since earlier this year. Still, an expansion of supply from shale deposits is working as an "automatic price stabiliser" in oil markets.
The completion of refinery maintenance, which normally boosts demand for crude and adds to the supply of fuels, may hurt processing profits, Taylor said. The firm plans to run its own plants at full capacity but could alter the strategy if margins turn negative, he said.
Storing oil at sea, a trade that was profitable in the 2008-09 recession, isn't proving viable these days, Taylor said. Future crude prices aren't trading at enough of a premium to near-term ones to cover the cost of hiring tankers to keep barrels on ships, he added.
Sunday Indo Business