End of Oil Glut Seen Nigh as World's Use Set to Top Production

(Bloomberg) -- Make the most of abundant oil because by the end of the year the world may be consuming more than it pumps.

The global crude market will shift into a deepening deficit in the fourth quarter amid a draw down in U.S. stockpiles, according to Standard Chartered Plc. While Qatar’s former oil minister says there’s currently a surplus of 2 million barrels a day, Sanford C. Bernstein Ltd. sees demand outpacing supply by 1.5 million a day by the fourth quarter.

Oil has recovered almost 40 percent since January on signs that a slowdown in U.S. drilling will alleviate the glut that drove prices to the lowest in six years. U.S. crude inventories probably shrank for a fourth week through May 22 after surging to the highest in 85 years, a Bloomberg survey showed.

“By the second half of this year we will go from being oversupplied to being undersupplied,” Neil Beveridge, Bernstein’s Hong Kong-based analyst, said by phone Wednesday. “Once we see U.S. production growth come to an end, with demand growth running at about 1.5 million barrels a day, we’ll see a significant tightening in the market.”

Brent crude was at $62.31 a barrel on the London-based ICE Futures Europe exchange at 8:02 a.m. in Singapore, up 38 percent from an almost six-year low of $45.19 on Jan. 13. West Texas Intermediate, the U.S. benchmark grade, traded at $57.70, after dropping as low as $42.03 on March 18.

Brent Rebound

Brent will rebound to $80 a barrel in the short-term while U.S. prices will rise to a range of $70 to $75 as demand growth outpaces new supply from countries outside the Organization of Petroleum Exporting Countries, according to Bernstein. Standard Chartered sees the European benchmark at $90 by the fourth quarter and WTI at $84.

“The start of sustained U.S. inventory declines is a significant milestone for the oil market,” analysts at the bank including Paul Horsnell wrote in a report dated May 26. “Virtually all the global build in commercial inventories so far in 2015 has occurred in the U.S. The end of this build is likely to be an early warning of a shift into deficit for the global market as a whole.”


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