Vitol: Oil Glut Drawdown has Yet to Materialize, US Shale Growing Faster Than Forecast

Vitol's remarks accompany the Saudis and other nations boosting output.

Amid reports of an Organization of the Petroleum Exporting Countries (OPEC) production cutback consensus reaching fever pitch and the market responding accordingly, Vitol delivered a one-two punch to optimists by reminding them that the oil market is not seeing a de-stocking that was expected and that U.S. shale continues to grow faster than anyone expected.

Chris Bake, executive committee member for Vitol, told the S&P Global Platts Crude Oil Summit that  "This 550 million barrel-plus inventory build of crude and products that started in 2014 is still very much there; how much is tertiary or strategic, how much is going to come out, that is an ongoing debate among all of us."

In a sideswipe to OPEC's efficacy overall, he added that "The market is in flux because we've all traditionally said there is this huge price regulator sitting there, that has been OPEC, and I think that model is severely challenged today.

"Three months later [after the start of the OPEC cutback deal], we see the U.S. rig count double and it says 'this isn't the only driver in the market any more. We have this other driver in the market that is incredibly powerful.'"

Meanwhile, Kho Hui Meng, president of Vitol Asia Pte., reiterated the familiar argument to BloombergMarkets that demand isn't expanding as much as expected and U.S. shale output is growing faster than forecast.

He pointed out that consumption was forecast to expand this year by about 1.3 million barrels per day (bpd) but has been limited to about 800,000 bpd so far, and that U.S. output had grown 400,000-500,000 bpd more than expected: "What we need is real demand growth, faster demand growth; growth is there, but not fast enough.

"If demand goes back to where it should, where it's forecast, then it'll help, but my gut feel tells me it is still a bit long."

Presumably contributing to the dismal scenario painted by Vitol are indications that OPEC countries including de facto cutback leader Saudi Arabia - while adhering to their cutback quotas - are chomping at the bit to break free of their self-imposed production restraints.

OPEC's latest monthly report showed that Saudi crude oil production rose by nearly 50,000 barrels per day last month, albeit still below the level it agreed to under the cutback parameters; also, Angola pumped nearly 100,000 bpd more than it did the previous month, while Nigeria's output jumped by about 50,000 bpd.

But the market along with analysts have demonstrated a knack for downplaying troubling fundamentals in favour of empty optimism, and expectations have lowered to a point where experts are now putting their faith in an OPEC cutback extension not because it will rectify the supply and demand balance, but because it could prevent oil's slide into the $30s.