Oil prices will likely end the year at around US$50 per barrel before rising to US$60 by the end of 2017, but beyond that, the recovery will likely have run its course.
That’s the view of Ian Taylor, CEO of Vitol Group, the world’s largest independent oil-trading house, who believes that prices are unlikely to rise much further over the next 18 months as demand growth slows and refiners comfortably meet gasoline consumption.
“I cannot see the market really roaring ahead,” Taylor told Bloomberg TV in an interview on Tuesday. “We have a lot of oil in the system and it will take us considerable time to work that off.”
After years of substantial price declines, something that culminated in Brent crude — the global benchmark — falling to a fresh multi-decade low of US$27.10 on January 20, prices have staged a spectacular recovery over the past six months, rising by as much as 95% to a high of US$52.86 a barrel in early June.
Along with a weaker US dollar, falling US production, short covering from speculators and improved sentiment towards the outlook for the Chinese economy, Taylor suggests that other one-off factors such as supply disruptions and stronger-than-expected demand growth helped to tighten crude markets, further bolstering gains.
However, he believes those factors are likely to diminish in the second half of the year, forecasting that Brent prices will likely end the year “not too far away from where we are today”.
“We probably expect demand growth to be slightly less in the second half of the year”.
“There is a little less pull from the Far East” and basic Chinese refineries, known as teapots, seem well satisfied after having “overbought” crude in the first months of the year, he told Bloomberg.
He also suggests that supply disruptions, such as militant attacks in Nigeria and closure of Canadian oilfields as a result of recent wildfires, “are beginning to correct themselves”.
Taylor’s assessment on where the Brent will finish 2016 is mirrored by financial markets with the December 2016 futures contract on the ICE currently trading at US$49.30 per barrel.
Looking further ahead, traders are more cautions on the outlook for prices in 2017 with the December 2017 contract currently sitting at US$53.15 per barrel.
Front-month Brent crude futures are currently trading at US$47.67 per barrel in Asia, down 0.6% for the session.
You can read the full article at Bloomberg.