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BP CEO 'very bearish' on oil as storage tanks are filling up

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BP is planning for oil prices to stay low for the first six months of the year and expects surplus production to only start diminishing when storage tanks fill up in the second half.

[LONDON] BP is planning for oil prices to stay low for the first six months of the year and expects surplus production to only start diminishing when storage tanks fill up in the second half.

"We are very bearish for the first half of the year," Chief Executive Officer Robert Dudley said at the IP Week conference in London Wednesday. "In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in. The market will start balancing in the second half of this year."

More than a year into a downturn sparked by OPEC's decision to keep pumping to defend market share, prices are still 70 per cent below their 2014 peak and companies are beset by plunging profits, dividend cuts and mass layoffs. The oil industry's annual IP Week gathering in London has been dominated by warnings that the worst of the slump isn't over.

Crude is trading below US$30 a barrel in New York after falling to a 12-year low last month, but production is still taking longer than expected to decline and record oil stockpiles just keep on growing, according to bankers, traders and executives attending the IP Week conference.

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Global oil supply still exceeds demand by as much as 1.7 million barrels a day, Igor Sechin, CEO of Russia's largest producer Rosneft OJSC, said at the conference. The imbalance will probably ease by the end of this year and potentially become a shortfall of 700,000 barrels a day by the end of 2017, he said. BP expects to see "a faster tightening" than that, Dudley said.

The anticipated decline in oil production resulting from low prices is taking longer than expected, according to Christopher Bake, a member of the executive committee at Vitol Group, the world's largest independent oil trader. Both conventional crude production and U.S. shale output have been "sustained" better than forecast, he said at the conference in London Tuesday.

About 360 million barrels of crude and refined products - or about 2 million a day - will be placed into storage over the next six months, Bake said. That's a surplus equivalent to the output of Nigeria, Africa's largest oil producer. Onshore storage tanks are brimming and now would be a good time to own ships capable of storing oil offshore, he said.

Crude stockpiles in the US, the world's largest consumer, rose above 500 million barrels last month to the highest since 1930, according to data from the Department of Energy. They are forecast to increase for a fifth week, according to a Bloomberg survey before government data released Wednesday. Inventories at the nation's biggest storage hub in Cushing, Oklahoma, expanded to the highest since 2004 last month.

With capacity to store oil exhausted in some places, prices may need to drop low enough to halt crude output that can no longer be stockpiled, according to Jeff Currie, head of commodities research at Goldman Sachs Group Inc. "I wouldn't be surprised if this market goes into the teens," he said in an interview with Bloomberg Television Tuesday.

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