Vitol Warns of "Very Volatile" Oil Market, Sees Prices Capped at $62/bbl

Vitol has warned of a "very volatile" oil market

Brent crude could experience a price vacillation of as much as $10 this year due to market tumult driven by the hard line policies from U.S. president Donald Trump, predicts the head of the Asian arm of Vitol Group – but BloombergMarketsVitol Warns of "Very Volatile" Oil Market points out that trading companies such as Vitol could be the big winners of this volatility.

Kho Hui Meng, president of Vitol Asia Pte., told Bloomberg that "I think this market is going to be very volatile: people are worrying about U.S. policy [and] with the new administration, a lot of things are being speculated."

Although Kho added that "We can't predict the future, we just have to wait," he noted that as investors await the fallout of Trump's policies and whether the Organization of the Petroleum Exporting Countries and other nations will fully reduce output under the cartel's agreement, global benchmark Brent crude may vacillate between $52 and $62 a barrel.

Bloomberg suggested this could be great news for Vitol and its rivals: "Vitol's $1.6 billion in earnings in 2015 were boosted as it profited from price swings in the energy market; it posted a 42 percent decline in first-half 2016 profit amid fewer opportunities to benefit from price changes."

Kho went on to state that the lack of new large-scale refineries coming online globally in the near term could tighten the market for distilled products, and that this will cause diesel, which "has gone through a rough time for a number of years ... [to] probably turn to come back."

Bloomberg noted that this in turn "would strengthen the spread between diesel and fuel oil, ahead of the implementation of new International Maritime Organization standards that could spur ships to switch to cleaner products such as ultra-low-sulfur diesel."

The volatility Kho forecasts could be said to be happening right now, if events on Monday are any indication: the rising U.S. dollar caused West Texas Intermediate to slip 82 cents to $53.01 per barrel, while Brent for April settlement fell $1.09, to $55.72 per barrel.

While the rising dollar (said to have been driven partly by the very same hard line Trump policies that have caused traders so much consternation) wiped out any potential gains that could have resulted from the OPEC production cutbacks, Bill O'Grady, chief market strategist at Confluence Investment Management, said, "Given the valuation of the dollar and the high inventory level its hard to justify these prices; we've built a lot of good news into the oil price, which makes it vulnerable."

And of course there seems to be no shortage of volatility ahead that is unrelated to the tough-talking U.S. president, case in point: Venezuela, whose PDVSA oil company faces default due to a weak liquidity position and relatively high amortization schedule in 2017, according to a Fitch report.

It seems the only entity not fazed by the brash billionaire's aggressive stance is the very country that inspired his pro energy independence rhetoric: Saudi Arabia, whose energy minister Khalid al-Falih, last week told BBC that, "I believe at the end of the day the Trump administration will do the right thing by the United States – and rightly so... and there are huge alignments in our interests."