Oil bosses are expecting the market surplus to diminish over time
Executives from oil majors, trading houses and oil companies said that the global oil market will tighten up in the medium-to-long term after recovering from its short-term weakness.
Oil prices have been impacted by the rising output of OPEC+ – which is a grouping of countries that are members of the Organisation of Petroleum Exporting Countries (OPEC) and their allies – as well as other producers. This has also been exacerbated by expectations of trade tensions leading to a reduction in demand.
Brent futures traded around $62 a barrel on Tuesday - down by over $15 from a year ago - after the International Energy Agency forecast a 4-million-barrel-per-day surplus (bpd) for 2026.
Executives said that the decline in production rates, which could increase as oil prices drop, will rebalance on the oil market over the medium-term, as the demand is boosted by the growing consumption of emerging economies.
SHORT TERM WEAKER - UPSIDE RISKS REMAINS
The executives of Vitol Trafigura and Gunvor see the oil price falling before it recovers in the coming year. They estimate that prices will be between $62-66.50 a barrel.
Gunvor CEO Torbjorn Tornqvist stated at the Energy Intelligence Forum in London that prices are "slowly coming down" and will continue to do so. He cited rising OPEC output, spare capacity available for Saudi Arabia and United Arab Emirates and a renewed focus on Iraqi Kurdistan's exports.
Ben Luckock, Trafigura’s head of oil, said that he believes prices will reach $50 at some point between Christmas and the New Year. He warned it would be a "mug's-game", or foolish, to place bets on prices below $50.
Vitol CEO Russell Hardy stated that the market is focusing on increasing supplies in the second-half of this year. However, he added that geopolitical risk, low inventories in Western countries, and strong refined product demand have held markets backwards despite falling prices.
A tight market is indicated by backwardation. This occurs when early contracts are traded above later ones.
Hardy, from Vitol, also warned that the market "probably undervalues" the possibility of supply disruptions in the coming year. He cited Iran, Russia, or Venezuela.
TIGHTNESS MEDIUM-TERM
TotalEnergies CEO Patrick Pouyanne stated that "we are quite bullish in the medium term", citing production declines as well as a lack of peak global oil demand.
ExxonMobil's CEO Darren Woods warned on Monday that the decline rate could reach 15% per annum without investing in unconventional oil and natural gas fields.
Amin Nasser, Saudi Aramco's CEO, said on Monday that the company sees a resilient demand and a pressing need to invest in long-term supply.
ConocoPhillips' CEO Ryan Lance stated that the price of a barrel could rise to $75. Reporting by Robert Harvey in London and Shadia Nasralla. Editing by Kim Coghill, Emelia Sithole Matarise, and Kim Coghill.
(source: Reuters)