BP, Vitol Differ On State of Oil Market Balance

Bob Dudley, chief executive of BP

While the recent agreement by Organization of the Petroleum Exporting Countries (OPEC) members to curb production and critical commentary that accompanied its wake would, at the very least, suggest that a market rebalance is required, remarks made this week by Bob Dudley, chief executive of BP, make even that fundamental objective questionable.

Speaking at the World Energy Conference in Istanbul, Dudley said he and his colleagues examine the market "on a daily basis and it is pretty much in balance; it is pretty much there, within half a million barrels one way or the other."

However, he concedes that given high oil stocks, it may be a while before the wider market sentiment changes.

Dudley added that BP is re-basing targets with regards to cost of production per barrel: "We said $60 next year; we are under $55 now. We can see our way to $53 next year.

"We are going to work hard make these sustainable, so that we don't have to rely on swings in prices that are volatile and not healthy for industries and consumers and markets."

The chief executive praised the much-maligned OPEC curb deal, and even though critics think the likelihood of rival members following through on the agreement – as well as the efficacy of the agreement itself – is tenuous, he pointed out that "countries that traditionally don't have good relations actually made some understanding and agreement there; it is just the fact that people are talking and there is cooperation is very significant."

But Dudley is arguably in the minority camp; more common are the cautious remarks made on Monday by Ian Taylor, chief executive of Vitol, who said that although oil prices would rise to the high $50s and low $60s due to OPEC members cutting 1 million barrels per day (bpd) in cumulative production, "can they really give us a million between OPEC and non-OPEC? It's a tough call."

And even if that amount were achieved, Taylor predicted it will still take until the second half of 2017 for a rebalance to occur; plus, increased production from Russia, Nigeria, Libya, and Iran could keep pockets of the market in surplus.

Taylor also expressed a certain ambivalence towards U.S. interests: specifically, he suggests that the nation's physical oil assets may have become too pricey, making them less attractive to trading houses such as his.

He told reporters that trading houses have even been lured into selling some holdings in a market he describes as "priced at some of the highest multiples in the world."

Taylor's mindset dovetails with that of Tom Kloza, global head of energy analysis at Oil Price Information Service; last week Klosa said that although "the OPEC honeymoon will continue for quite a while," he maintained that $54.50 is what market technicians are truly waiting for – but that futures will likely bounce between $48 to $54 until OPEC convenes for its official meeting in Vienna on November 30.

He also told CNBC that "I just don't see any way that we get a $60 average for a month within the next 12 months."