Oil traders foresee little relief as glut lingers

The largest oil traders are anticipating little relief to what has become the worst market slump in a generation.

All but one of 15 senior oil traders and executives interviewed this week at the annual Asia-Pacific Petroleum Conference in Singapore expect crude to remain between US$40 and US$60 a barrel over the next 12 months.

Brent crude has traded in that range for the past five months. Oil and natural gas companies have cut more than 350,000 jobs since crude prices started to fall in 2014 as explorers slashed hundreds of billions of dollars in investment to weather the rout.

While crude has climbed from the 12-year lows reached at the start of this year, a supply glut caused by the US shale boom is pinning prices at half the levels of two years ago.

"The issue is that once prices go up too fast, American drillers start to produce more," Mr Arzu Azimov, head of Socar Trading, said. "The market will stay in the corridor of US$40 to US$50, max US$55."

The majority of oil traders said market rebalancing has been pushed back by at least six months from their projections early this year because of higher-than-expected production from Iran and Saudi Arabia, coupled with the resilience of US shale output.

Mr Saad Rahim, chief economist at oil trading house Trafigura Group, said: "The market has yet to start working through millions of barrels of inventories accumulated during the downturn."

The bearish tone at Asia's top energy conference reflects scepticism that Opec nations and other producers can agree to cap output and shrink a global glut when they meet for talks later this month in Algiers.

While oil prices have jumped more than 10 per cent since early August amid speculation that Saudi Arabia and Russia can marshal a production freeze, their actions point in a different direction.

Riyadh is pumping the most crude on record, while Russian oil output climbed above 11 million barrels a day for the first time since at least 1991, according to data published on the website of the Russian Energy Ministry's CDU-TEK unit for the start of September.

"Prices may well be capped around current levels for another year, rather than rising gradually through 2017," said Ms Amrita Sen, chief oil analyst at consultants Energy Aspects.

Brent, the global benchmark, traded at US$48.62 in Hong Kong yesterday afternoon, below the most recent peak of US$52.86 set in June. Brent hit a 12-year low of US$27.10 a barrel in January.

Global oil markets will continue to rebalance this year as a pickup in demand from refiners absorbs record output from several Persian Gulf producers, the International Energy Agency predicted last month.

However, Mr Keisuke Sadamori, director of energy markets and security at the International Energy Agency, told conference delegates that petroleum stocks haven't substantially declined yet.

The "huge" stockpile accumulated over the past two years "will serve as a lid on prices in the near future", he said.

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A version of this article appeared in the print edition of The Straits Times on September 09, 2016, with the headline 'Oil traders foresee little relief as glut lingers'. Print Edition | Subscribe