Daily Management Review

Trafigura: the period of low oil prices is nearing the end


09/26/2017


The period of steadily low oil prices is nearing its end, as demand grows and shortages of supplies are coming soon, Bloomberg reports with reference to Trafigura Group company, which is the third largest independent oil trader.



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pixabay
The global market may face a deficit by 2019, said a representative of Trafigura Group at the S&P Global Platts APPEC conference on Tuesday. According to him, up to 9 million barrels of oil per day can be lost as a result of the reduction in supplies by 2019. At the same time, the company adheres to the "bullish" sentiment regarding demand, especially in India, the fastest growing oil consumer in the world.

"We are approaching the end of the" low long "oil prices," said Trafigura Group.

Like Trafigura, Citigroup Inc. expects demand to outpace production. Citigroup predicts that a deficit in the market may occur already in 2018. This corresponds to the moderately "bullish" mood of oil traders who met in Singapore at the APPEC conference. This annual event, as a rule, serves as a good barometer for determining the prospects for oil for the coming year. As BP added, strong economic growth stimulates oil consumption significantly above historical level, while OPEC and its allies restrict production.

The surge in shale oil production in the US, which prompted the Organization of Petroleum Exporting Countries to protect its market share, exacerbated overproduction over the past three years, leading to a collapse in prices. This year, OPEC has changed course, reducing production to reduce excess oil.

Falling prices

When the head of BP Plc, Bob Dudley, said in April 2015 that prices would remain low for a long time, Brent crude was trading near $ 63 per barrel. By the next January, the price fell below $ 30 and since then has not exceeded $ 60. Futures are still traded more than 50% below the level of mid-2014.

The decline in oil prices has led to an increase in sales of SUVs in the US and China, which could potentially increase the demand for fuel, said Trafigura. According to them, the spread of electric vehicles was too late to alleviate the forthcoming problems with the supply of oil.

Even if all new vehicles in the US were electric vehicles, it would take more than 12 years to replace all cars, he explained. Meanwhile, productivity is falling in the US shale sector. According to Trafigura, productivity in the Perm basin is steadily declining after reaching the peak.

As previously reported, the International Energy Agency (IEA) stated that the surplus of oil in the world market is beginning to decline due to higher than expected demand in Europe and the US, as well as a decrease in production in OPEC and outside the cartel.

The agency increased the estimate of the growth in oil demand in 2017 from 1.5 million to 1.6 million barrels per day.

source: bloomberg.com






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