EMEA News
Andurand Sees Return to $70 Oil Based on Good Faith from OPEC and Rapidly Diminishing Supply
Trustworthy compliance and Vladimir Putin's stamp of approval: these are some of the elements that compelled Pierre Andurand, chief investment officer and founder of Andurand Capital Management LP, to state that oil, which was impacted this week with news of record high production levels, will soon rise to $70.
Andurand, speaking in the wake of disclosures that the Organization of the Petroleum Exporting Countries (OPEC) and Russia pumped a combined record volume of 45.3 million barrels per day in November, argued that "the improvement in fundamentals since May have not yet been priced in, and this OPEC deal hasn't been priced in yet, so I think we should go pretty fast to $60 to $70 next year."
In turn, that could see IFO380 bunker prices in the primary ports reach as high as $400/mt, Ship & Bunker data suggests.
Andurand also expressed optimism about the recently ratified OPEC cutback deal actually being implemented: "I think compliance will be good ... It's the first time they [OPEC] have a committee to deal with compliance, so I think it's real.
"The cut from Russia is real as well: it's coming from Putin."
Andurand also dismissed the notion that, the cutback aside, huge production volumes and the prospect of yet more inventory build up are causes for concern: "Everyone speaks of U.S. shale, but the rest of the world [supply] is declining fast."
Mohamed El-Erian, chief economic advisor for Allianz SE, takes the opposing view: in a December 6 Bloomberg column, he wrote that $70 oil won't come anytime soon due to shale suppliers ready to increase their market share, as well as uncertainty about whether strongly and more timely monitoring and verification processes will indeed accompany the cutbacks.
He stated, "The best that OPEC can reasonably hope for is to initially stabilize prices in the $50 to $60 range."
Muted optimism seems to be the prevailing sentiment with regards to OPEC: 260 energy professional respondents to a new Reuters survey believe the cartel will ultimately succeed in cutting output, but only by 600,000 barrels per day (bpd) - half its stated target of 1.2 million bpd.
Less than 8 percent of respondents think OPEC will achieve its target in full, and more than twice as many think output will stay the same or rise.
Meanwhile, as OPEC nations prepare to follow through on cuts, Kuwait and Saudi Arabia have reportedly agreed that any resumption of crude production from shared oil fields along their border won't raise their output beyond limits set by the cutback deal.
Sally Jones, a spokeswoman for Chevron, said, "We are encouraged by efforts underway by all appropriate parties to resolve the issue."
Alejandro Barbajosa, VP, crude & LPG - Middle East & Asia-Pacific at Argus Media, recently predicted that the OPEC cuts will be "quite meaningful" in reducing global inventories, even though he conceded that the initiative will be impacted by a rise in 2017 of U.S. shale production.
