Oil rout over, OPEC aims for $50 an­chor, says PIRA's Ross

The Pak Banker - - MARKETS/SPORTS -

Ma­jor OPEC pro­duc­ers are pri­vately start­ing to talk about a new oil price equilibrium of $50 a bar­rel, adding to signs that the mar­ket's long, deep rout is of­fi­cially over, says one of the in­dus­try's lead­ing prog­nos­ti­ca­tors.

Gary Ross, the founder, ex­ec­u­tive chair­man and chief oil sooth­sayer at New York-based con­sul­tancy PIRA, told clients 2-1/2 weeks ago that he reck­oned the "lows are in" for crude, which was then about $30 a bar­rel. U.S. fu­tures CLc1 have ral­lied since then to close at nearly $36 on Fri­day, with a hand­ful of an­a­lysts also cau­tiously call­ing a bot­tom.

In an in­ter­view with Reuters, Ross said oil should re­cover to $50 a bar­rel by the end of the year, po­ten­tially aided by even­tual sup­ply cuts from lead­ing pro­duc­ers among the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries (OPEC). "They want $50 oil, this is go­ing to be­come the new an­chor for global oil prices," said Ross, one of the in­dus­try's most re­spected fore­cast­ers for his bold price pre­dic­tions and decades­long his­tory of con­sult­ing with OPEC mem­bers. "While it may not be an of­fi­cial tar­get price, you'll hear them say­ing it. They're try­ing to give the mar­ket an an­chor."

If Saudi Ara­bia and other pow­er­ful Gulf OPEC mem­bers be­gin in­vok­ing $50 as "fair price for pro­duc­ers and con­sumers" - a once-fa­vored phrase that has been ab­sent for sev­eral years - it may could sig­nal the end of an un­usual and ex­tended pe­riod in which the group aban­doned ef­forts to man­age the mar­ket.

Af­ter years of sig­nal­ing sat­is­fac­tion with prices hov­er­ing at around $100 a bar­rel, top ex­porter Saudi Ara­bia in late 2014 led OPEC in its most dra­matic pol­icy shift in decades. No longer would the world's top oil ex­porter, or its OPEC al­lies, agree to cut their own pro­duc­tion to sup­port such high prices, which they feared would erode their share of the world mar­ket.

In­stead, they would keep pump­ing and al­low prices to fall. While they did not an­tic­i­pate the long­est and deep­est oil price rout since the mid-1980s, the ef­fort has at last be­gun to curb the rise of ri­val high­er­cost pro­duc­ers such as U.S. shale drillers, an­other sign that prices may have found a bot­tom.

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