Americas News
Investment Reductions Will Significantly Change Supply and Demand Dynamics As Early As This Year: ABN Amro
Despite the current glut, which some analysts now say won't be cleared substantially until the end of 2018, ABN Amro believes demand may very soon exceed supply due to reductions in oil company capital expenditures.
Speaking with Bloomberg, Hans Van Cleef, energy economist for the company, said that capital expenditure reductions set to reach $1 trillion by 2020 "will have a big impact on global supply."
Van Cleef is convinced that Brent will climb to $70 in 2017, and as soon as the market realises a supply shortage is imminent, "that should give a huge boost to oil prices."
Of similar mindset is Simon Flowers, chief analyst at Wood Mackenzie Ltd., who calls the investment reductions a "ticking time bomb" that will push prices higher and benefit U.S. shale producers.
His expectations are even grander than those of Van Cleef's: shale output will bottom early next year and then return to the record level set in 2015 of about 4.5 million barrels per day (bpd) within two years, he says; in the longer view, he thinks shale production will nearly double to 8.5 million bpd by the middle of the next decade, spurred by cost savings of as much as 40 percent.
But these outlooks don't seem to jibe with a more sombre market assessment provided by Michael Hsueh, a strategist at Deutsche Bank AG: he, like many other experts, is worried about the magnitude and variety of the current glut, and he forecasts oil at $54 next year.
He adds, "We're looking at a market that's still in a very slow process of rebalancing and we don't think that you'll get a sustainable deficit until the second quarter of 2017.
"Those deficits are necessary to draw down global inventories, but that will still take until the end of 2018, it appears."
Bloomberg notes that although U.S. stockpiles are down from an April peak, "they remain far above anything the market has witnessed at this time of year for at least three decades; worse, gasoline inventories are at unprecedented levels, too, crushing processing profits from a fuel that a few months ago was seen as an industry bright spot."
One thing is certain: a tumultuous market encourages a wide spectrum of predictions, and oil's steady price decline of the past few weeks have inspired no end of conflicting forecasts with John Kilduff, founding partner of Again Capital, the unofficial voice of caution by stating that oil is headed towards $35 and that the downturn will be "the knockout blow" for many companies.
