Hess CEO Predicts "New Chapter" of $60-$80 Oil

by Ship & Bunker News Team
Thursday December 15, 2016

As futures on Wednesday tumbled 3.7 percent after closing the day prior at a 17-month high, John Hess, CEO of Hess Corporation, said the ratified Organization of the Petroleum Exporting Countries (OPEC) cutback deal and U.S. president-elect Donald Trump's focus on oil and gas production will lead to a significant rise in prices in the near future.,

He told CNBC's Squawk Box, "You clearly have to have a new chapter of rising oil prices to attract investment, to grow supply, to keep up with growing demand; I think we're now in an upward trajectory of prices."

He added that for supply and demand to strike a good balance, oil prices need to trade in a range of $60 to $80: "We have to have the price signal to make sure we have enough supply to be affordable, that it's going to keep price stability, and it's also going to have supply security."

For bunker buyers, this range for crude would put IFO380 bunker prices in a range of $315/mt to $450/mt in the primary ports, Ship & Bunker data indicates.

However, markets on Wednesday indicated they were in no rush to rise to this new level, as Brent fell $1.82 to settle at $53.90 per barrel, while West Texas Intermediate dropped $1.94 to close at $51.04 per barrel.

This caused Bill O'Grady, chief market strategist at Confluence Investment Management, to remark that the market was due for a pull back and "Cushing showed another build; the API completely missed the crude decline and we didn't rally, which shows that the market needs to take a break."

O'Grady is referring to Energy Information Administration data showing that crude stockpiles at Cushing, Oklahoma, rose by 1.22 million barrels to 66.5 million in the week ended December 9.

Wednesday's market drop was also a reaction to the Federal Reserve, which in forecasting a steeper path for rising borrowing costs in 2017 raised its interest rates for the first time this year.

While Hass sees a glowing 2017, many analysts irrespective of Wednesday's market losses think otherwise: Sammy Six, senior oil market analyst at S&P Global Platts, told CNBC that "there's a lot of downside to the oil price, especially because for example Libya and Nigeria are not joining in the OPEC cuts," meaning if their production goes up, it will impact the efficacy of the deal.

Six also pointed out that, "Going forward, I think there's a lot of potential for countries not to adhere to their output cuts," and he added that current record production is an attempt to cut "at the highest possible levels."

Six believes oil will stay in the $55-$60 range until there is more data on actual production and export in 2017.

PVM analysts said in a note earlier this week that market optimism will die and prices will turn quickly if OPEC cutback compliance ultimately proves to be lacking: "The following three to six months will provide us with an answer as to whether the foundation is strong enough to hold the building or will it collapse like a house of cards."