As the oil industry’s top executives gathered in London for one of the most important events of the year, their view on crude prices was clear: They will struggle next year.
Vitol SA chief executive officer Russell Hardy told the Oil & Money conference on Wednesday that the ongoing US-China trade dispute was curbing the outlook for crude prices, which would be stuck in the US$50s a year from now.
The bosses of fellow commodity traders Trafigura Group Ltd and Gunvor Group Ltd agreed, at least in the short term.
“Without some resolution to the trade wars, then we’ll remain a little bearish,” Hardy said.
For months, the oil market has been focused on a worsening demand outlook and trade tensions between the world’s two biggest economies, with the bearish mood only briefly pierced by attacks on Saudi Arabia’s energy infrastructure.
Trafigura CEO Jeremy Weir said the trading house expects a slight recovery this quarter, with prices “maybe slightly lower from where we are now” in a year’s time.
“Particularly with the current trade environment and a strong US dollar, I would say there’s further downside in the short term,” Weir said.
Gunvor CEO Torbjorn Toernqvist said he also sees oil at current levels, of under US$60 a barrel, a year from now and that next year the market would “test OPEC’s resolve” on its commitment to coordinated output cuts.
The current production cuts deal, agreed by OPEC and its allies, is due to expire in March next year.
Analysts at the conference echoed the view of trading houses, saying they saw the oil market remaining amply supplied next year.
Goldman Sachs Group Inc commodities research head Jeffrey Currie sees Brent crude at US$60 over the next two years.
The market is pricing in plenty of supply and demand is a concern, Cornerstone Macro LLC global energy economist Jan Stuart said.
After a strong start to the year, Brent oil reversed direction in late April and has lost about 22 percent since then. The global benchmark was just below US$58 a barrel in early trading in Asia yesterday.
However, Royal Dutch Shell PLC boss Ben van Beurden said he was surprised prices were not higher than current levels, following the worst-ever attack on Saudi Arabia’s energy infrastructure last month.
“It’s a but puzzling in a way, but shows how good the response of Saudi Aramco has been,” van Beurden told Bloomberg TV. “The market is a little bit anesthetized by trade wars and the glut of shale to the point where it has become blase about geopolitical risk. I think it’s not representative of the real picture.”
Toernqvist agreed, adding that it seems that there is currently no risk premium on oil prices.
“It’s amazing that prices are at low-end of where they were before attack,” he said.
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