Prime Oil Merchants Flip Bearish on Costs, Seeing Oversupply

(Bloomberg) — The temper at Houston’s massive annual oil and gasoline get-together has been upbeat on the prospects for the trade below a fossil fuel-friendly Trump administration. However there’s a big catch: a number of the largest oil merchants are getting extra bearish on the outlook for crude costs.

Whereas they don’t see the prospect of a crash, high merchants together with Vitol and Gunvor mentioned costs might grind decrease as provide begins to outstrip demand. The OPEC+ group of producers has begun releasing extra barrels into the market, the US will proceed so as to add manufacturing — albeit extra slowly than lately — and South America can be rising.

“The trade is over-drilling now, that’s clear,” Gunvor Group Chairman Torbjörn Törnqvist mentioned in an interview at CERAWeek by S&P World in Houston. “We’re drilling extra inside and out of doors OPEC than demand progress warrants.”

The prospect of Russian sanctions being eased is one other issue including to the bearish temper. Already, crude flows from Russian ports within the 4 weeks to March 9 jumped by about 300,000 barrels a day — the most important achieve since January 2023.

On the demand aspect, whereas international consumption has been rising steadily, many in Houston expressed the view, each publicly and privately, that President Donald Trump’s tariff insurance policies threaten to sluggish the US economic system.

Vitol Group Chief Govt Officer Russell Hardy estimated costs might now commerce in a brand new vary of about $60-$80 a barrel, settling in a barely decrease vary than the previous few years. Gunvor mentioned there’s a chance that WTI, the benchmark US worth might go beneath $60 a barrel, not less than for a short while.

Benchmark Brent futures have dropped greater than 12% from the height this yr to simply over $70 a barrel, near the bottom since 2021. WTI is down roughly 15% from its excessive to $67 a barrel.

Nonetheless, there are the explanation why any slide may very well be restricted. The Trump administration has threatened measures to crack down on the availability of sanctioned Iranian oil into the market and Venezuelan provide can be below stress.

One other type of help comes from expectations that US oil manufacturing progress – significantly shale – might additionally decelerate if costs slide in the direction of $60 a barrel.

On the finish of final yr, Trafigura anticipated US manufacturing to develop by about 400,000 barrels a day, of which about 100,000 was shale. If present worth declines are sustained, there may very well be a state of affairs the place US shale output stays flat and even declines, mentioned Saad Rahim, chief economist at Trafigura.