Oil Trader Vitol Sees Softer Oil Price in Short Term

SEATTLE (Oil Monster): The chief executive of the world’s biggest oil trader, Vitol, told Reuters he expects a weaker oil price in the short term but does not see sustained levels below $50 a barrel.

Global oil prices fell sharply last month on signs of a slowing world economy and the on-going trade war between the United States and China.

“I expect a softer price in Q4 but it is unlikely to be sustained below $50 a barrel because that means $45 for shale, which would result in capex being cut,” CEO Russell Hardy said.

For much of August, Brent crude futures traded below $60 a barrel. The contract has since rebounded to trade at around $60 with U.S. WTI futures at around $56 a barrel.

Despite an OPEC-led production cut, oil has tumbled from April’s 2019 peak above $75 a barrel. In July, OPEC, Russia and other producers renewed a pact to cut output by 1.2 million bpd until March 2020 to avoid a build-up of inventories that could hit prices.

Though technological improvements have made U.S. shale extraction more efficient since the oil price crash in 2014, the still capital-intensive process remains vulnerable to low prices and drilling campaigns have already decelerated this year.

U.S. firms cut the number of oil rigs operating last month, taking the rig count to its lowest since January 2018. 

Further ahead, Hardy said he expected an oil price around $60 a barrel in 2020 as another 2 million barrels per day of supply hits the market.

“I see a few headwinds - a lot of supply is coming online from Brazil and Canada next year, the new U.S. pipelines will increase exports ... Equinor’s Johan Sverdrup is starting against a backdrop of demand that has been set back a little by the economic concerns,” Hardy said.

Two major U.S. pipelines started up last month, easing an inland bottleneck as they are capable of carrying about 1 million bpd to U.S. Gulf Coast while the Johan Sverdrup field in the North Sea is expected to reach a peak output of 440,000 bpd in summer 2020.

Supply side issues due to sanctions on Iran and Venezuela and potential outages in Libya could help balance the market.

Courtesy: www.reuters.com