Americas News
Petronas Sees $45/bbl Crude in 2017, but Vortexa Data Suggests Market is Changing Faster than Anticipated
Even though Tuesday's strong upswing in crude was a cause for jubilation in many quarters and predictions that even better figures are in the offing, Petronas sounded a voice of reason by suggesting that prices could drop even lower than the high $40s/low $50s experienced of late.
Wan Zulkiflee Wan Ariffin, chief executive officer at Petronas, told Bloomberg, "For this year at Petronas, we developed our budget based on $45 Brent; today the price is slightly above that, rangebound, [but] for us, we think the second half [of this year] will be uncertain on where the oil price will settle - but we're doing all that's necessary to prepare ourselves for any eventualities in the second half."
Ironically, Ariffin's remarks accompany data provided to the Financial Times by Vortexa showing that seaborne oil shipments have dropped by as much as 16 percent since the beginning of this year - meaning supplies could be dropping faster than many analysts believe.
Shipments on April 3 totaled 759.6 million barrels of crude in transit from producers to refineries or storage farms, with an additional 52 million barrels still held on supertankers globally, this is down from 899.4 million barrels in transit on January 1, when 78.4 million barrels was held in floating storage.
Also, Vortexa notes that the combined total is down by 17 percent from the same day a year ago, suggesting the supply drop is more than just a seasonal fall due to refineries conducting maintenance.
Fabio Kuhn, chief executive and co-founder of Vortexa, pointed out that "Water is where the market changes first; we think this is some of the first evidence that supply cuts are having a major effect."
Kuhn is referring to the Organization of the Petroleum Exporting Countries (OPEC) cutback initiative, now in its third month of implementation; and while the Vortexa co-founder concedes that the massive increase in U.S. shale production has caused their stock level to go up, "the rest of the world is not reflective of that; the U.S. has been disconnected because of the amount of oil that's being produced there."
Still, companies such as Petronas prefer to play it safe rather than celebrate single-day good news events, whether they are at sea or on the trading floor: when asked to speculate if OPEC will extend its cutbacks to the end of 2017, Ariffin replied, "essentially it will be up to the technical committee to make the recommendations to OPEC.
"For us, like i said, we will be prepared, and essentially of course we hope that whatever the arrangement is, the price will be better than what it was for the first half of last year - but we will be prepared if that's not the case."
Presumably, John Kilduff, founding partner of Again Capital, would favour Petronas's cautionary approach: earlier this week he warned that "a one-two punch" is coming in the form of steadily rising U.S. shale production, which in turn may test the commitment of Saudi Arabia and other OPEC nations to adhere to their production cut agreement.
He concluded that as a result, the market will likely reach the low $40s later in 2017.
