The oil market is careening toward a supply gap that could send U.S. crude prices above $70 a barrel, oil guru Gary Ross says.
The oil market is in the midst of a “calm before the storm” with strong demand from Asia setting up a global competition for oil that will propel prices higher, said Mr. Ross, global head of oil analytics and chief energy economist at S&P Global Platts.
“Pressure is going to build on crude prices,” he said. “We’re not feeling it now, but we will.”
A rally in oil that started last year has stalled in 2018 as prices have been pulled into equity markets’ gyrations and as forecasts for massive increases in U.S. crude production have spooked some investors. Brent, the global benchmark, is trading just shy of $66 a barrel, after topping $70 in January. U.S. crude is below $63 after rising as high as $66.
Mr. Ross is known for his frequently rosy outlook, but he has called downturns before.
Some have considerably more muted expectations. Ed Morse, global head of commodities research at Citigroup, often sees things differently than Mr. Ross. He has predicted that 2018 could play out a lot like 2014—a year in which prices climbed to more than $107 a barrel but then fell sharply. Citigroup says oil prices in the high $50s are more likely this summer.
Even with a surge in U.S. output, the oil market will be short by more than 800,000 barrels a day this year, according to Mr. Ross.
At the heart of his forecast is rising demand, especially in India and China. He anticipates that refiners in the two countries will together soak up 1.1 million barrels of crude per day more than last year, offsetting the extra output from U.S. shale.
Buyers in Asia have been pulling supplies from places like Russia and West Africa—barrels that would have otherwise flowed to European refiners, he said.
At the same time, OPEC’s cuts have depleted oil stockpiles. And outside North America, Mr. Ross said he doesn’t expect much in the way of additional oil production compared with last year.
As a result, when refiners in other parts of the world, especially Europe, finish with seasonal maintenance work and want to buy more crude, they may find that they have to pay higher prices to get their hands on it, Mr. Ross said.
“The world is going to be short come peak season,” he said. “When the music stops, someone’s not going to have a seat.”
Source: WSJ
