Top Oil Traders See 2020 Prices Stuck in the $50s
(Bloomberg) -- As the oil industry’s top executives gathered in London for one of the most important events of the year their view on crude prices was clear: they’ll struggle next year.
Vitol SA Chief Executive Officer Russell Hardy told the Oil & Money conference on Wednesday that the ongoing U.S.-China trade dispute was curbing the outlook for crude prices which would be stuck in the $50s a year from now. The bosses of fellow commodity traders Trafigura Group Ltd. and Gunvor Group Ltd. agreed, at least in the short term.
“Without some resolution to the trade wars then we’ll remain a little bearish,” said Hardy.
For months, the oil market has been focused on a worsening demand outlook and trade tensions between the world’s two biggest economies with the bearish mood only briefly pierced by attacks on Saudi Arabia’s energy infrastructure.
Trafigura CEO Jeremy Weir said the trading house expects a slight recovery in the fourth quarter of 2019 with prices “maybe slightly lower from where we are now” in a year’s time.
“Particularly with the current trade environment and a strong U.S. dollar, I would say there’s further downside in the short term,” said Weir.
Gunvor CEO Torbjorn Tornqvist said he also sees oil at current levels, of under $60 a barrel, a year from now and that next year the market would “test OPEC’s resolve” on its commitment to coordinated output cuts. The current production cuts deal, agreed by the Organization of Petroleum Exporting Countries and its allies, is due to expire in March 2020.
Analysts at the conference echoed the view of trading houses, saying they saw the oil market remaining amply supplied next year.
Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., sees Brent crude at $60 over the next two years. The market is pricing in plenty of supply and demand is a concern, Jan Stuart, global energy economist at Cornerstone Macro LLC added.
After a strong start to the year, Brent oil reversed direction in late April and has lost around 22% since then. The global benchmark was just below $58 a barrel in early trading in Asia on Thursday.
Missing Geopolitical Risk
Royal Dutch Shell Plc boss Ben van Beurden however said he was surprised prices weren’t higher than current levels, following the worst-ever attack on Saudi Arabia’s energy infrastructure last month.
“It’s a but puzzling in a way but shows how good the response of Saudi Aramco has been,” van Beurden told Bloomberg TV on Wednesday. “The market is a little bit anesthetized by trade wars and the glut of shale to the point where it has become blase about geopolitical risk. I think it’s not representative of the real picture.”
Gunvor’s Tornqvist agreed, adding that it seems that there is currently no risk premium on oil prices.
“It’s amazing that prices are at low-end of where they were before attack,” Tornqvist said.
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