Kilduff Revises March Prediction of $25 Oil, Now Estimates Prices Could "Easily Correct" to $35

Kilduff reiterates his position that a true market rebalance won't happen any time soon.

While granting that the lost oil production of countries such as Canada and Nigeria is substantial, John Kilduff, partner at Again Capital, states that the industry has a knack of rebounding from adverse conditions and thinks the market could become oversupplied again, "causing prices to easily correct back to $35 per barrel."

Kilduff, who in March estimated oil would fall back to $25 due to the global glut combined with the absence of any meaningful production cutback, also believes that a true clearing of the supply-demand balance is unlikely until 2017.

Over the last three months, Ship & Bunker's Global 20 Ports Average for IFO380, which represents the average price for a vast majority of global bunker volumes, has fluctuated between 55 and 73 percent of Brent; based on that trend a drop to $35 oil would see prices fall to $145 to $198 per metric tonne (pmt).

In citing the Canadian wildfires, the violence in Nigeria, the "economic Armageddon" of Venezuela, and the oil workers' strikes in Kuwait, Kilduff estimates the daily loss of production overall at as much as 3.75 million barrels: "But these will not be lasting disruptions."

Kilduff argues that even fragile peace in regions such as Libya is enough for producers to resume output, as evidenced by cargo sailing last week from that country's eastern port; and the oil market "has lived for decades" with bouts of hostility on the Nigerian Delta.

Kilduff further strengthens his prediction of $35 oil by reiterating Saudi Arabia's vow to raise its output to 11.5 million barrels per day (bpd), which would represent an overall 1 million bpd increase.

He writes, "Do yourself a favor, when handicapping the oil market, start by taking the Saudis at their word: more often than not, they put (or remove) their oil where their mouth is."

Unlike some other analysts who have contradicted earlier market predictions due to recent price upswings, Kilduff has been moderately consistent in his outlook: earlier this week, when Brent hit a six month high over worries about the Canadian and Nigerian supply outages, he warned that the world is still oversupplied by 1.5 million bpd and he does not see the market rebalancing anytime soon.