[TOKYO] Make the most of abundant oil, because by the end of the year the world may be consuming more than it pumps.
The global crude market will shift into a deepening deficit in the fourth quarter amid a draw down in US stockpiles, according to Standard Chartered Plc. While Qatar's former oil minister says there's currently a surplus of 2 million barrels a day, Sanford C Bernstein Ltd sees demand outpacing supply by 1.5 million a day by the fourth quarter.
Oil has recovered almost 40 per cent since January on signs that a slowdown in US drilling will alleviate the glut that drove prices to the lowest in six years. US crude inventories probably shrank for a fourth week through May 22 after surging to the highest in 85 years, a Bloomberg survey showed.
"By the second half of this year we will go from being oversupplied to being undersupplied," Neil Beveridge, Bernstein's Hong Kong-based analyst, said by phone Wednesday. "Once we see US production growth come to an end, with demand growth running at about 1.5 million barrels a day, we'll see a significant tightening in the market."
Brent crude was at US$62.31 a barrel on the London-based ICE Futures Europe exchange at 8:02 am in Singapore, up 38 per cent from an almost six-year low of US$45.19 on Jan 13.
West Texas Intermediate, the US benchmark grade, traded at US$57.70, after dropping as low as US$42.03 on March 18.
Brent will rebound to US$80 a barrel in the short-term while US prices will rise to a range of US$70 to US$75 as demand growth outpaces new supply from countries outside the Organization of Petroleum Exporting Countries, according to Bernstein. Standard Chartered sees the European benchmark at US$90 by the fourth quarter and WTI at US$84.
"The start of sustained US inventory declines is a significant milestone for the oil market," analysts at the bank including Paul Horsnell wrote in a report dated May 26. "Virtually all the global build in commercial inventories so far in 2015 has occurred in the US. The end of this build is likely to be an early warning of a shift into deficit for the global market as a whole."
While oil demand may pick up in summer, the slowdown in US drilling isn't big enough to lower production and excessive supply will continue to prolong the surplus, according to Goldman Sachs Group Inc. The market will remain "well oversupplied" through 2016, the bank forecast in a May 22 report, also citing sharp growth in output from low-cost suppliers.
US crude inventories decreased to 482.2 million barrels through May 15, the Energy Information Administration reported last week. Supplies are still near the highest level since 1930, based on monthly records from the Energy Department's statistical arm dating back to 1920.
US crude supplies increased by 1.3 million barrels through May 22, the industry-funded American Petroleum Institute was said to have reported Wednesday. Government data Thursday is forecast to show inventories decreased by 2 million barrels, according to a Bloomberg survey.
OPEC will keep its daily production target of 30 million barrels a day at its June 5 meeting in Vienna, according to all but one of 34 analysts and traders surveyed by Bloomberg.
The Saudi Arabian-led decision to maintain output at Opec's last gathering in November accelerated the collapse in oil as the group favoured market share over prices in a bid to drive out high-cost producers.
With oil companies around the world cutting investment, US output peaking and prices rebounding, the strategy will be extended next week, say Societe Generale SA and Bank of America Corp.