Crude's Plummet Accompanied by Predictions of Mid-$30s or Lower Oil and a "Challenging" 2017

by Ship & Bunker News Team
Friday November 4, 2016

As oil on Thursday dropped to its lowest price since September with West Texas Intermediate suffering a fifth straight day of losses, John Kilduff, founding partner of Again Capital, has a message for investors: get set for prices in the mid-$30s and a rough 2017.

His reason for the dire prediction is the same as the one that caused Brent and WTI on Thursday to settle down at $46.35 and $44.66 respectively: an expanding global supply glut in which stockpiles rose by a record 14.4 million barrels last week, according to the U.S. Energy Information Administration.

Kilduff also supports his position by noting that the days leading up to the Vienna meeting of Organization of the Petroleum Exporting Countries' (OPEC) members to ratify its output reduction deal are characterized by vows of  "higher, not lower, production from seemingly every corner of the producing universe."

He says the machinations of the deal's participants "is sort of like an old Vaudeville skit where two comics keep urging the other to enter the unknown by alternatively repeating to each other, "After you; no, after you.'"

As a result, "the market is removing the Algiers deal premium from prices, and it will continue to do so," writes Kilduff in a CNBC editorial, adding, "In fact, the selling is likely to intensify further into the November 30th meeting of OPEC ministers, where they would have you believe a definitive production will be struck."

He says this combined with an increase in deals involving the storage of oil on tankers means "WTI oil prices are set to trade back down to the mid-$30s, at least, putting the February low of $26.05 back in play, into year-end.

"2017 is looking like another challenging year for the energy industry."

But at least one country seems unfazed at a time of tumult: Saudi Arabia's state-owned Saudi Arabian Oil Co. (Aramco) this week increased its pricing for Arab Light crude to Asia by 90 cents a barrel, to a premium of 45 cents over the regional benchmark.

The uptick in price is said to be motivated by a brief increase in demand for Middle Eastern crude; Aramco has also raised the price of all grades to northwest Europe, and all grades to the Mediterranean except Arab Heavy.

Flying directly in the face of Kilduff's prognostications, Amin Nasser, chief executive officer for Aramco, stated in a recent Riyadh conference that supply and demand will be in balance by the end of this year, with demand set to grow by about 1.2 million barrels per day this year and next – which in turn will help push prices higher in the first half of 2017.

Kilduff has repeatedly warned that market conditions and OPEC could easily plunge prices back into the $30s, and earlier this year he noted that such a plummet would be "the knockout blow" for many companies.