World's largest en­ergy trader sees a decade of low oil prices

The Pak Banker - - BUSINESS -

Oil prices will stay low for as long as 10 years as Chi­nese eco­nomic growth slows and the U.S. shale in­dus­try acts as a cap on any rally, ac­cord­ing to the world's largest in­de­pen­dent oil­trad­ing house.

"It's hard to see a dra­matic price in­crease," Vi­tol Group BV Chief Ex­ec­u­tive Of­fi­cer Ian Tay­lor told Bloomberg in an in­ter­view, say­ing prices were likely to bounce around a band with a mid-point of $50 a bar­rel for the next decade. "We re­ally do imag­ine a band, and that band would prob­a­bly nat­u­rally see a $40 to $60 type of band," he said. "I can see that band last­ing for five to ten years. I think it's fun­da­men­tally dif­fer­ent."

The lower bound­ary would im­ply lit­tle price re­cov­ery from where Brent crude, the global price bench­mark, trades at about $35 a bar­rel. The up­per limit would put prices back to the level of July 2015, when the oil in­dus­try was al­ready tak­ing mea­sures to weather the cri­sis. The fore­cast, made as the oil trad­ing com­mu­nity's an­nual IP Week gath­er­ing starts in Lon­don on Mon­day, would mean oil­rich coun­tries and the en­ergy in­dus­try would face the long­est stretch of low prices since the the 1986-1999 pe­riod, when crude mostly traded be­tween $10 and $20 a bar­rel.

Vi­tol trades more than five mil­lion bar­rels a day of crude and re­fined prod­ucts -- enough to cover the needs of Ger­many, France and Spain to­gether -- and its views are closely fol­lowed in the oil in­dus­try. Tay­lor, a 59-year- old trader-cum-ex­ec­u­tive who started his ca­reer at Royal Dutch Shell Plc in the late 1970s, said he was un­sure whether prices have al­ready bot­tomed out, as sup­ply con­tin­ued to out-pace de­mand, lead­ing to ever higher global stock­piles. How­ever, he said that prices were likely to re­cover some­what in the se­cond half of the year, to­ward $45 to $50 a bar­rel.

For the fore­see­able fu­ture, Tay­lor doubts the oil mar­ket would ever see the triple-digit prices that fat­tened the sov­er­eign wealth funds of Middle East coun­tries and pro­pelled the val­u­a­tions of com­pa­nies such as Exxon Mo­bil Corp. and BP Plc. "You have to be­lieve that there is a pos­si­bil­ity that you will not nec­es­sar­ily go back above $100, you know, ever," he said.

The prob­lem is that "there

is so much more sup­ply" while the global econ­omy is more ef­fi­cient in con­sum­ing crude. On top of that, Iran is re­turn­ing to the mar­ket and growth in emerg­ing mar­kets, the big­gest en­gine of oil de­mand, is slow­ing.

"China has changed," he said. Oil prices plunged af­ter the Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries in Novem­ber 2014 di­verged from its tra­di­tional pol­icy of ad­just­ing sup­ply to man­age prices, an­nounc­ing it would main­tain out­put to de­fend its po­si­tion in the mar­ket. The group for­mally dropped any pro­duc­tion lim­its in De­cem­ber, boost­ing out­put and in­ten­si­fy­ing a price war against higher-cost pro­duc­ers in­clud­ing U.S. shale op­er­a­tions, the North Sea, Canada's tar sands and deep-wa­ter dis­cov­er­ies in Brazil and An­gola.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.