Oil Guru Who Called 2014 Slump Sees Return to $100 Crude by 2020
2015-07-21 05:16:33.107 GMT
By Javier Blas and Grant Smith
(Bloomberg) -- The oil guru who predicted last year’s rout
said $100-a-barrel crude is likely to return within five years
as faltering supply fails to meet demand.
Gary Ross, the founder of consultants PIRA Energy Group,
said oil markets aren’t nearly as oversupplied as many believe
and spare capacity is tight since Saudi Arabia is pumping all
the crude it can without new drilling.
“Current prices are unsustainable,” he said Monday in an
interview in London. “It’s hard not to see oil hitting $100 a
barrel at some point in the next five years.”
The forecast from Ross, who last year turned bearish on oil
before prices shrank by half, is at odds with other analysts and
investors bracing for “lower for longer” prices, a term coined
by BP Plc Chief Executive Officer Bob Dudley. Saudi Oil Minister
Ali Al Naimi said in December the world may not see $100 crude
again, while the International Energy Agency has described the
markets as “massively oversupplied.”
Such views fail to take into account the impact of $50 oil
on output outside North America as producers reduce spending,
according to Ross. The likelihood of further disruption to OPEC
supplies and the boost to consumption from cheap fuel also
support prices, he said.
Brent crude, the global benchmark grade, lost 10 cents to
$56.55 a barrel on the London-based ICE Futures Europe exchange
at 1:06 p.m. Singapore time on Tuesday. West Texas Intermediate
oil fell 18 cents to $49.97.
Policy Change
PIRA hosted a seminar in New York in October where Saudi
officials hinted they would change their oil policy. OPEC’s
biggest oil-exporting nation announced weeks later that it would
maintain production to defend market share, sending prices
plunging.
Saudi Arabia has already exhausted its ability to ramp up
“instantaneous” production in the event of an outage, Ross
said. The kingdom, which pumped a record of almost 10.6 million
barrels a day in June, could raise output by 1 million barrels a
day in 90 days with extra drilling, he said. That’s about half
the spare capacity estimated by the Paris-based IEA.
“There’s not spare capacity to speak of instantly
available,” Ross said. There are also growing geopolitical
threats to supply, including from Islamic State, he said.
PIRA forecasts a jump in global oil demand of about 1.7
million barrels a day this year and a similar gain in 2016. That
exceeds the 10-year average increase of about 1 million barrels
a day. It sees strong demand in Europe, the U.S. and Japan.
Tighter Supply
Supplies from most countries outside the Organization of
Petroleum Exporting Countries will contract next year for the
first time since 2008. While output in North America will
increase, production from Australia, the North Sea, Colombia and
Argentina will decline, according to PIRA.
Even higher exports from Iran following the landmark July
14 accord to ease sanctions may do little to check oil’s
advance, Ross said. The increase may be limited to less than
500,000 barrels a day over six months and the country will
struggle to sell its condensate stockpiled on tankers, he said.
Hedge funds and other speculators, having cut bullish bets
on WTI crude to the lowest level since March, may be ready to
start buying again as low prices cause the market to tighten.
“We are approaching selling exhaustion,” Ross said. “The
magic of prices works.”
For Related News and Information:
Saudis Pump Record Oil as OPEC Sees Stronger Demand in 2016
Saudi Arabia Pumps Oil Flat Out in Citi, Goldman’s New Oil Order
--With assistance from Angelina Rascouet in London.
To contact the reporters on this story:
Javier Blas in London at +44-203-525-9426 or
jblas3@bloomberg.net;
Grant Smith in London at +44-20-3525-7353 or
gsmith52@bloomberg.net
To contact the editors responsible for this story:
Will Kennedy at +44-20-3525-3603 or
wkennedy3@bloomberg.net
Amanda Jordan, Randall Hackley
2015-07-21 05:16:33.107 GMT
By Javier Blas and Grant Smith
(Bloomberg) -- The oil guru who predicted last year’s rout
said $100-a-barrel crude is likely to return within five years
as faltering supply fails to meet demand.
Gary Ross, the founder of consultants PIRA Energy Group,
said oil markets aren’t nearly as oversupplied as many believe
and spare capacity is tight since Saudi Arabia is pumping all
the crude it can without new drilling.
“Current prices are unsustainable,” he said Monday in an
interview in London. “It’s hard not to see oil hitting $100 a
barrel at some point in the next five years.”
The forecast from Ross, who last year turned bearish on oil
before prices shrank by half, is at odds with other analysts and
investors bracing for “lower for longer” prices, a term coined
by BP Plc Chief Executive Officer Bob Dudley. Saudi Oil Minister
Ali Al Naimi said in December the world may not see $100 crude
again, while the International Energy Agency has described the
markets as “massively oversupplied.”
Such views fail to take into account the impact of $50 oil
on output outside North America as producers reduce spending,
according to Ross. The likelihood of further disruption to OPEC
supplies and the boost to consumption from cheap fuel also
support prices, he said.
Brent crude, the global benchmark grade, lost 10 cents to
$56.55 a barrel on the London-based ICE Futures Europe exchange
at 1:06 p.m. Singapore time on Tuesday. West Texas Intermediate
oil fell 18 cents to $49.97.
Policy Change
PIRA hosted a seminar in New York in October where Saudi
officials hinted they would change their oil policy. OPEC’s
biggest oil-exporting nation announced weeks later that it would
maintain production to defend market share, sending prices
plunging.
Saudi Arabia has already exhausted its ability to ramp up
“instantaneous” production in the event of an outage, Ross
said. The kingdom, which pumped a record of almost 10.6 million
barrels a day in June, could raise output by 1 million barrels a
day in 90 days with extra drilling, he said. That’s about half
the spare capacity estimated by the Paris-based IEA.
“There’s not spare capacity to speak of instantly
available,” Ross said. There are also growing geopolitical
threats to supply, including from Islamic State, he said.
PIRA forecasts a jump in global oil demand of about 1.7
million barrels a day this year and a similar gain in 2016. That
exceeds the 10-year average increase of about 1 million barrels
a day. It sees strong demand in Europe, the U.S. and Japan.
Tighter Supply
Supplies from most countries outside the Organization of
Petroleum Exporting Countries will contract next year for the
first time since 2008. While output in North America will
increase, production from Australia, the North Sea, Colombia and
Argentina will decline, according to PIRA.
Even higher exports from Iran following the landmark July
14 accord to ease sanctions may do little to check oil’s
advance, Ross said. The increase may be limited to less than
500,000 barrels a day over six months and the country will
struggle to sell its condensate stockpiled on tankers, he said.
Hedge funds and other speculators, having cut bullish bets
on WTI crude to the lowest level since March, may be ready to
start buying again as low prices cause the market to tighten.
“We are approaching selling exhaustion,” Ross said. “The
magic of prices works.”
For Related News and Information:
Saudis Pump Record Oil as OPEC Sees Stronger Demand in 2016
Saudi Arabia Pumps Oil Flat Out in Citi, Goldman’s New Oil Order
--With assistance from Angelina Rascouet in London.
To contact the reporters on this story:
Javier Blas in London at +44-203-525-9426 or
jblas3@bloomberg.net;
Grant Smith in London at +44-20-3525-7353 or
gsmith52@bloomberg.net
To contact the editors responsible for this story:
Will Kennedy at +44-20-3525-3603 or
wkennedy3@bloomberg.net
Amanda Jordan, Randall Hackley