A supply crunch is looming in the global oil market that will bring an end to the “lower for longer” era of low oil prices, according to one of the world’s biggest commodities traders.
Ben Luckock, co-head of group market risk at Trafigura, said the Brent crude isn’t likely to stay in a tight $40 to $60 a barrel range, according to the Financial Times.
Brent crude hit a near two-year high of $59.49 on Tuesday, before sliding to $59.01 a barrel. West Texas Intermediate, the U.S. benchmark for crude prices, stood at $52.35 a barrel.
“The world could be significantly short of oil capacity,” Luckock said in a presentation to the annual Asia-Pacific petroleum conference on Tuesday. Strong U.S. crude output won’t be enough to fill any shortfall, he said.
A threat to Iraqi Kurdistan’s crude exports has helped to support prices that have risen on strong oil demand, while OPEC cutbacks have pared bloated inventories, according to the FT. Recep Tayyip Erdogan, the president of Turkey, threatened to cut off the pipeline that carries crude from northern Iraq to foreign markets as part of his opposition to an independence referendum in Kurdistan.
Not everyone agrees with Luckock, especially with the possibility that U.S. producers could ramp up production.
“$50-$60 [a barrel] is where we should be,” Christopher Bake, head of origination at Vitol, told the FT. He said U.S. shale producers shouldn’t rely on OPEC and countries outside the cartel to support prices. “There is finite patience there.”
The Federal Reserve has steadily raised interest rates for the past two years, and next month will start to lets its bond portfolio decline by $10 billion a month. Rate hikes may have a dampening effect on oil prices as the dollar strengthens in relation to commodities.
The U.S. market continues to signal large oversupply, Reuters reported.
Hurricane Harvey disrupted about 25 percent of U.S. refining capacity and half a dozen U.S. Gulf Coast ports and pipelines late last month, which has led to a buildup of crude stocks.
The biggest unknown is the future of U.S. production, which is expected to rise this year and next. U.S. output is forecast to reach more than 10 million barrels a day next year, a nearly 1.25 million barrel increase from the start of 2017, according to the U.S. Energy Information Administration.
Harold Hamm, chief executive at shale producer Continental Resources Inc., disagrees with that forecast. He told CNBC this month that the EIA’s estimate was as many as 500,000 barrels too high.
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