Trafigura says oil set for US$60s, but do not be too bearish

TWO of the largest commodities traders in the world have painted a bleak picture on the outlook for the oil market, echoing concerns over Chinese demand and plentiful supply on day one of the Asia Pacific Petroleum Conference (Appec) in Singapore.

The mood from the biggest gathering of oil executives, traders and investors in Asia was overwhelmingly bearish, highlighted by a gloomy forecast for Brent crude by commodities trader Trafigura.

The global benchmark is “probably going to go into the US$60s some time relatively soon”, said Trafigura head of oil Ben Luckock.

However, he cautioned about being too bearish on the oil market. “It’s dangerous because there’s so many events out there that can ruin your day. I wouldn’t put all your chips on the table being short,” he said.

Thousands have gathered at the conference to talk oil and the broader market, with China’s slowdown and the structural shifts in the global energy mix likely to be popular topics.

Oil has tumbled since early July – wiping out all of the gains this year – on concerns about the demand outlook for China and the US, and ample supply from outside the Organization of the Petroleum Exporting Countries (Opec).

Opec+, which is a larger group of oil-producing countries, last week resorted to delaying a planned output increase from October. However, it is sticking with a longer-term objective to boost production into next year.

The downbeat outlook for Brent crude from Luckock came as Morgan Stanley cut its price forecasts for the benchmark for a second time in a matter of weeks. Futures were trading near US$72 a barrel on Monday (Sep 9).

“Today, we are producing much more oil than we are consuming, and that balance is seen to worsen over the next years,” said Torbjorn Tornqvist, chairman of major trader Gunvor Group,

However, Jeff Currie, chief strategy officer of Carlyle Group’s Energy Pathways and a veteran commodities analyst, was more upbeat about the outlook than Tornqvist.

Currie acknowledged China’s economic woes, but pointed to interest rate cuts from the US Federal Reserve and a likely recovery in financial positioning as bullish drivers.

“I’m not going to be jumping up and down for strong demand growth out of China,” said Currie. “The growth going forward for oil and energy is going to come out of places such as India, Africa and parts of Latin America.”

One of China’s refining giants, Rongsheng Petrochemical, was also among the few bullish voices.

Oil demand in Asia is far from its peak and will largely be driven by the need for petrochemical products, said Chen Hong-Bing, general manager of the company, which is backed by Saudi Aramco.

Still, the so-called price floor of oil may be shifting to about US$70 a barrel, from around US$75 to US$80, said Goldman Sachs’ head of research Daan Struyven. That is the estimated, long-run US shale breakeven price.

The conference resumes on Tuesday, and will hear from executives from BP, Chevron, Repsol and TotalEnergies on a range of topics including oil trading, shipping and refining. BLOOMBERG