Daily Management Review

There's Never Been A Better Time To Buy Oil For Some, Say Analysts


05/12/2017




There's Never Been A Better Time To Buy Oil For Some, Say Analysts
A wave of new supply in oil is hitting the market from Texas to Libya, OPEC seems to be losing its ability to influence prices and oil is trading near $50 again. But there’s never been a better time to buy for some.
 
Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. said that despite last week’s selloff, the global oil market is rebalancing rapidly. According to the IEA’s Head of Oil Industry and Markets Neil Atkinson, demand will significantly exceed production, if the Organization of Petroleum Exporting Countries extends its cuts into the second half – as the group has signaled.
 
“Do I want to be long oil? The answer is absolutely yes because we are going into a deficit market,” Currie said at the S&P Global Platts Global Crude Summit in London on Wednesday. “With demand continuing to surprise to the upside,” the global supply deficit may be as wide as 2 million barrels a day by July, he said.
 
Amid doubts about the effectiveness of OPEC and Russia’s joint supply curbs, brent crude, the international benchmark, fell to a five month low of $46.64 a barrel last week.
 
However much of a price recovery could not be triggered even by subsequent signals from Saudi Arabia and Moscow that they could extend cuts into 2018. Banks including Goldman and Citigroup Inc. say markets are nevertheless tightening and prices are poised to rise again, even while the resurgence in U.S. shale oil continues to cause doubts about whether the three-year supply glut really is over.
 
The U.S. Department of Energy’s weekly report on crude stockpiles, the most keenly watched data on the market, delivered some powerful backing on Wednesday for the bulls. Noting the biggest reduction this year, the nation’s inventories fell by 5.2 million barrels last week. Within minutes of the data release, West Texas Intermediate crude rallied as much as 3.3 percent to $47.40.
 
Curries said this quarter, the decline in global fuel stockpiles will accelerate. He said that dropping like a brick is the volume of crude held in floating storage on tankers -- often a key indicator of a supply surplus.
 
Bassam Fattouh, a director at the Oxford Institute for Energy Studies said the aim of OPEC’s supply deal was to shrink inventories, and by that measure it’s succeeding.
 
But not everyone is convinced they’ll maintain the near-full compliance seen in recent months even though OPEC and its allies looks set to prolong their agreement into the second half of the year.
 
David Fyfe, chief economist at oil trader Gunvor Group said that curbs in the first quarter were comparatively easy to implement for Russia, Iraq and Iran -- three of the largest producers involved in the agreement. He said that while Russia usually experiences a seasonal lull in the winter, the Middle Eastern producers were already close to their maximum production capacity.
 
“They’ll likely agree to extend into the second half of 2017, but the risk is higher that they’ll leak extra barrels onto the market,” he said.
 
(Source:www.bloomberg.com) 






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