Oil prices have probably bottomed out and will rise from now on though the recovery will be slow due to a huge stocks overhang, some of the biggest oil trading executives said on Tuesday.
“The downturn in oil markets is behind us … The trend is now up … But rebalancing will take time. We will probably continue to build stocks for some time,” Torbjorn Tornqvist, the head of Gunvor, told the FT Commodities Summit.
“We have seen the bottom,” said Jeremy Weir, chief executive of Trafigura, predicting that supply and demand would be in balance by the third or fourth quarter of this year. Marco Dunand, the head of Mercuria, said he saw prices at above $50 per barrel next year.
Oil prices have dropped to as low as $27 per barrel – in January – from as high as $115 in mid-2014, forcing producers to cut spending by hundreds of billions of dollars and capping output growth in the United States.
“Low oil prices cannot last long as current prices do not allow many producers to recover costs … As of today it appears that we will be able to overcome the global oversupply within two years,” said Igor Sechin, head of Kremlin oil major Rosneft .
Russia and OPEC are close to clinching a deal to freeze output growth to help the market rebalance quicker but the head of oil at trading house Glencore, Alex Beard, said on Tuesday he did not believe this will help clear the glut fast.
“I can’t see a huge opportunity for positive surprises (from the Doha OPEC/non-OPEC meeting). A freeze doesn’t change the market dynamic,” Beard said.
BP chief economist Spencer Dale said oil markets would likely see overall supply levels unchanged this year with increases in Iranian output offset by drops in production in other parts of the world.
Most traders said Iran’s output increase would be slower than expected because of banking and legal complications despite the lifting of international sanctions in January.
“Getting capital in to do what they need to do won’t be easy so I think it will be slower than they hoped,” said Vitol chief executive Ian Taylor.