“I’m pretty short-term cautious about pushing oil up through $50 a barrel because I’m not at all confident that they can remove a million barrels a day from the market straight away,” David Fyfe, Gunvor’s head of research, said Thursday at the AppleTree Investment conference in Geneva. “Once you get beyond, into 2018 and beyond, I think you could be looking to be much more constructive on crude.
Crude supply from Iran and Iraq may plateau, according to Fyfe. Within hours of the OPEC announcement in Algiers, Iran and Nigeria said they considered themselves exempt from any commitment to freeze supply, while Iraq rejected OPEC’s own estimates of how much crude it’s pumping — which could determine the size of eventual output cuts.
Gunvor’s bearish short-term outlook for crude comes as macroeconomic factors have delayed oil-market re-balancing, said Fyfe. The U.S. shale industry hasn’t become the swing producer that many thought it would, he said.
Non-OPEC supply is now contracting by a million barrels a day year-on-year, after previously growing by 2 million barrels a day, Fyfe said.
“The job is partly done,” he said. “OPEC, by reducing the price, has squeezed non-OPEC supply growth out of the system. But it still has that inventory cushion that it has to deal with.”
Geneva-based trader Gunvor handles about 2.5 million barrels of crude and petroleum products per day.
Demand from China has helped to underpin oil prices, while consumption in India is projected to grow by 400,000 barrels per day, according to Fyfe. “People are looking at India picking up the baton for demand growth going forward,” he said.
Oil prices will eventually climb to $60 or even $80 a barrel as the market re-balances, but that won’t happen for at least six to nine months, according to Gunvor’s research head, who thinks OPEC will find it difficult to apportion the planned cuts.
“My expectation is that inventory will continue to be an issue for the market through toward the middle part of next year,” said Fyfe. “There’s been a lot of hype about OPEC and the re-emergence of OPEC and this wonderful agreement that they reached in Algiers. I think that may be a little bit premature.”