Vitol Sees Oil-Price Stability, Contracting U.S. Production

Price swings in crude oil will ease in the second half of the year and U.S. production will probably start contracting by December, Vitol Group’s chief executive officer said, predicting no return to $100 a barrel within three years.

It’s uneconomic for some U.S. companies to continue operating at current prices and supply will eventually be cut, Ian Taylor, CEO of the world’s largest independent oil trader, said at a conference in Cape Town Tuesday. The market remains oversupplied and prices may weaken further until that supply slowdown takes place, he said.

“We are all trying to work out when does the incremental U.S. production begin to disappear,” Taylor said. “We believe the market will come to balance by the second half of the year and we should see prices steady up and maybe go up a bit from there.”

Crude’s rebound from the lowest level in almost six years has faltered amid speculation that a surplus may expand. U.S. production and stockpiles continue to rise from the highest level in three decades, even after last year’s price slump of almost 50 percent. Cutbacks in oil-drilling rigs in the U.S. have so far failed to slow output growth, the International Energy Agency said in a report March 13.

Rig Count

Rigs targeting oil in the U.S. fell by 56 to 866, Baker Hughes Inc. said on its website on March 13, the lowest level since March 25, 2011. That will equate to annual production growth of 230,000 barrels a day by the fourth quarter, Goldman Sachs Group Inc. said in a report on March 15.

“With the huge drop in rig counts, it would be very odd if we didn’t see production beginning to tail off in terms of its growth in the second half,” Taylor said in an interview after speaking. “At the moment, we continue to see good supply and as yet American production particularly continues to be still growing. There is potential for prices to still drop further.”

Oil will “probably not in the next three years” return to $100 a barrel, Taylor said. “I wouldn’t rule it out at some stage.”

Vitol is seeking to hedge refining margins in the second half of the year, which could be a difficult period for companies processing crude, Taylor said.

U.S. crude production increased to 9.37 million a day in the week to March 6, the fastest pace since at least January 1983, according to the Energy Department’s statistical arm. The country’s output will start to drop by the end of the year, Taylor said.

Vitol’s revenues fell 12 percent in 2014 due to the plunge in the oil price, the company said in a statement March 12. In a “demanding year” of highly volatile markets, revenue fell to $270 billion from $307 billion in 2013. Brent crude dropped 48 percent last year, the biggest annual decline since 2008.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE