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Oil trader Trafigura heralds end of 'lower for longer' crude era
[LONDON] The age of persistently weak oil prices is nearing its end, with demand booming and a supply squeeze in the offing, according to Trafigura Group.
The global market could face a shortage by 2019, Ben Luckock, co-head of Group Market Risk at the third-largest independent oil trader, said at the S&P Global Platts Appec conference on Tuesday.
As much as 9 million barrels a day of supply could be lost to crude-well declines by 2019, and the company is bullish on demand, he said, especially in India, the world's fastest growing oil consumer.
"We are nearing the end of 'lower for longer' oil," Mr Luckock said, referring to a term used as far back as April 2015 by BP boss Bob Dudley as a global glut wreaked havoc on crude prices worldwide.
Trafigura's view that demand is set to outstrip supply mirrors Citigroup, whose global head of commodities said that a market squeeze may emerge as early as 2018.
It also echoes tentatively bullish oil traders who have gathered in Singapore for Appec, an annual event that's typically a good barometer to judge the outlook for oil the coming year.
Strong economic growth is boosting oil consumption well above historical levels, according to BP, while Opec and its allies curb output.
A surge in US shale production that spurred the Organization of Petroleum Exporting Countries to pump at will to defend its market share exacerbated a market oversupply over the past three years, driving the biggest price crash in a generation. Opec has this year changed tack by curbing output in a bid to shrink the glut.
When BP's Dudley referred to 'lower for longer' prices in April 2015, global benchmark Brent crude was trading near US$63 a barrel.
By the following January, it had dropped to below US$30 and hasn't made it back above US$60 since. Futures are still trading more than 50 per cent lower than mid-2014 levels.
The weaker oil prices have boosted sales of low-efficiency sports utility vehicles in the US and China, potentially boosting fuel demand, according to Trafigura's Luckock. He sees the growth in electric vehicles occurring too late to ease coming oil supply problems.
Even if all new US vehicles were EVs, it would still take more than 12 years to replace fleets, he said.
Meanwhile, in the American shale oil patch, productivity is diminishing.
The Permian region's productivity is falling steadily after reaching a peak, according to Mr Luckock.