ANTWERP, Belgium, Jan 26 (Reuters) - Oil markets will fail to balance until as late as 2017, industry figures said on Tuesday, as increased production from OPEC offsets any decline from unconventional sources of crude.
Record stock builds in crude and oil products will continue through the bulk of 2016, David Fyfe, Gunvor’s head of market research and analysis, and Richard de Caux, head of refining economics with BP, said at the Platts Middle Distillates Conference in Antwerp.
“We believe the balance between supply and demand will return early next year and (will) gradually draw down the massive inventory surplus over the next year to two years,” De Caux said.
BP estimates that global oil stocks grew by 600 million to 700 million barrels in 2015, and de Caux said more was likely to flow into tanks worldwide through 2016.
Even as oil from unconventional sources, such as U.S. shale, was expected to fall this year, de Caux and Fyfe warned that production increases by the Organization of the Petroleum Exporting Countries would outweigh the expected decline.
In 2015, OPEC pumped an extra 1-1.5 million barrels per day (bpd), with most of the increase from Saudi Arabia and Iraq. This year, the removal of international sanctions against Iran will enable it to return largely unfettered to oil export markets.
“If you do get any incremental production increase from OPEC - read Iran - you’re going to sustain stock builds,” Fyfe said. He added that as a result, it would be a “considerable number of months before we start edging higher” on prices.
While current prices are what de Caux described as an “extended aberration”, both said $100 a barrel was unlikely to return consistently in the near term, given the efficiencies and cost cuts the oil industry had undertaken while prices sank.
However, by 2020, once demand had risen to match production, and higher-cost producers had fallen away, both warned that spare capacity worldwide could quickly become a problem.
“The Saudis have just 2 million bpd in spare capacity. In a 90-92 million bpd market, 1 million bpd of spare capacity isn’t much,” Fyfe said, adding “we’re going to see a lot of choppiness and volatility to the upside”. (Reporting by Libby George; Editing by Dale Hudson)