Oil Guru Who Foresaw Crash Says OPEC Should Have Cut Deeper

Oil Guru Who Foresaw Crash Says OPEC Should Have Cut Deeper
The oil guru who predicted the market rout in 2014 said OPEC and its allies should have gone much further when they extended their supply deal last month.

(Bloomberg) -- The oil guru who predicted the market rout in 2014 said OPEC and its allies should have gone much further when they extended their supply deal last month.

“They should have cut another million barrels a day for ninety days in order to drain the system,” said Gary Ross, global head of oil at PIRA Energy, a forecasting and analytics unit of S&P Global Platts.

For Ross, the producers missed an opportunity to deepen cuts between June and August when refinery demand is higher and so accelerate the decline in inventories. Such a move would have pushed the market into backwardation, when near-term prices are higher than those for later months, he said. That structure favors OPEC because it would discourage their shale-oil rivals from locking in prices for future production.

“If that was really their objective, then they should have cut during this window of maximum crude runs to accelerate,” he said.

The Organization of Petroleum Exporting Countries and partners led by Russia re-upped their agreement on May 25, agreeing to maintain curbs of as much as 1.8 million barrels a day until next March. Yet benchmark crude prices have since slid toward $47 a barrel, and the International Energy Agency said Wednesday that the cuts are only slowly diminishing global stockpiles.

Ross’s view was echoed by analysts at Sanford C. Bernstein Ltd., who said OPEC needs to cut deeper for longer to restore inventories to normal levels. “OPEC needs to drain by 34 million barrels a month or 1 million barrels a day for the next 10 months,” the analysts wrote in a note. “This looks challenging.”

Ross also warned that Chinese crude-demand growth is set to decrease in the second half of this year. “That poses a real problem for OPEC as they enter 2018,” he said.

Ross lowered his forecast for benchmark Brent crude to $50-$55 a barrel by year-end, he said Wednesday. In early February, he expected Brent would be trading near $60-$65 a barrel by now and reach as much as $70 by year-end.

Although the market is rebalancing, the surplus isn’t reducing at the rate OPEC had hoped and will still be at 150 million to 200 million barrels by year-end, Ross said. That’s partly because crude production is increasing in Libya and Nigeria -- OPEC members that are exempt from curbing output because of internal turmoil.

In November, two weeks before OPEC decided to implement curbs, Ross predicted an agreement could eliminate most of the surplus stocks by the beginning of the second half of this year.

With assistance from Javier Blas. To contact the reporters on this story: Angelina Rascouet in London at arascouet1@bloomberg.net; Laura Hurst in London at lhurst3@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Alex Devine.


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Albert C.J.M. Dujardin  |  June 18, 2017
It is remarkable that time and again these articles about whos fault it is that the oil price is too low address the wrongdoing or shortcomings of OPEC! This press knows that everyone who reads Rigzone is aware of the real problem, the shale oil and gas production! Prior to this shale production the USA required to import the majority of their daily use. The world production could cope with this and at times when the world production increased or stagnated made the Oil price fluctuate, to our liking or not! Now that the USA produces most of its own demand and countries like Libya, Nigeria and Iran start exporting again as they used to, the blame goes to OPEC? Partly justified? However for a large share it is the problem of the USA shale production. Hence the USA should step up its self control and limit its overall production. In this way we will see the total overproduction cap, been taken away by the USA and OPEC. This will have two positive results; One is that the 2 to 3 million barrels over production will disappear, what will not happen without the control of the USA. Two, the shale operators will achieve a better economic picture for their operation as the barrel price will increase to a profitable level.
Rudolf Huber  |  June 16, 2017
There were others that really predicted the oil price predicament. I myself was way more precise than Ross. http://www.lng.guru/lost-28-usd-oil-price-wager/ OPEC does not understand one thing. The world has been consuming faked growth data from many countries for decades. Its so deep in our blood that we cant even smell it anymore. Look at China where one region after the other is exposed. Thats just the tip of the iceberg. Real economies have been pushed to the sidelines by boys with spreadsheets and they will tweak any number. The world economy is not quite as big as many want to believe and this simple fact starts to seep through in many ways. Lower oil consumption is one of them. This Ponzi is about to blow.