Top oil traders don’t see quick recovery

Stockpiles likely to continue to build until the third quarter of next year

The world’s largest independent oil traders said supplies will overwhelm demand into next year and prices may not rally until 2017, painting a gloomy outlook for energy-rich nations as Opec gathers to discuss output policy.

Their market view indicates that the 12-member group — and the oil industry as a whole — will have to endure a much longer slump than the downturn that followed the 2008 financial crisis, when prices recovered within a year.

“The stock-build will continue to weigh on the market, with prices unlikely to move beyond the current range until well into 2017,” said Chris Bake, a senior executive at Vitol Group, the biggest independent oil trader. Benchmark Brent crude has traded between $43 and $65 (Dh158 and Dh239) a barrel over the past six months.

That outlook is echoed by rival trading houses including Trafigura Pte Ltd and Gunvor Group Ltd as Saudi Arabia, Iraq, Russia and others pump full-throttle to defend market share. With the Organisation of Petroleum Exporting Countries expected to maintain output policy when it meets tomorrow, and Iran planning to ramp up output next year regardless of quotas, brimming stockpiles are set to rise further.

“For 2016, we see inventories globally building up,” said Sa’ad Rahim, chief economist at Trafigura. “The glut definitely extends into the new year.”

Brent has tumbled about 38 per cent in the past year and lost more than a quarter of its value since Opec last met in June. Futures traded at $43.88 a barrel as of 1:45pm in London yesterday.

Opec, which produces about 40 per cent of the world’s oil, has pumped above its collective quota for 18 months, according to a Bloomberg survey of companies and analysts. Saudi Arabia, the group’s de facto leader, raised its own production to a record of almost 10.6 million barrels a day in July, a 800,000- barrel-a-day increase from a year earlier, or more than the production of Qatar.

Iran sanctions

Opec nations Venezuela, Iran, Iraq and Ecuador have all called for a cut in production to bolster prices. Yet Iran plans to boost its own output should sanctions be lifted early next year.

“Restarted Iranian production will likely place a ceiling over prices in 2016,” said David Fyfe, head of research at Gunvor in Geneva.

Brent crude will average about $57.30 a barrel next year, a Bloomberg survey shows. That would leave all Opec members except Qatar unable to balance their budgets, according to break-even prices from the International Monetary Fund and ING Bank.

In the absence of a policy change by Opec, or any unforeseen disruption to supply, stockpiles will continue to build until the third quarter of next year, according to Vitol’s Bake.