Oil Trading House Says Crude Price Near Readjustment

Oil markets might be nearing readjustment as the pain for producers becomes overwhelming with some grades selling at below cost and products such as fuel oil fetching almost nothing, one of the biggest oil traders said.

“Some fuel in the U.S. is currently sold close to zero due to the application of contractual discounts to the benchmark. That shows we are close to a readjustment,” Marco Dunand, founder and chief executive of trading house Mercuria, said.

“What OPEC didn’t want to do, the market is doing it for them,” he said in an interview.

Crude has dropped to nearly $30 a barrel from as high as $115 in mid-2014 on the back of higher U.S. shale oil production and a supply increase from OPEC, which decided to fight for market share rather than cut output to correct prices.

Many OPEC officials have said supply was poised to drop as non-OPEC output shrank fast and global demand continued to grow.

Most market watchers and oil economists, including the International Energy Agency, say it could take up to a year to clear an oil overhang in storage even if output starts declining quickly among non-OPEC producers.

No. 2 Russian oil firm Lukoil said last week Russian output would drop by 2-3 percent in 2016 and one of OPEC’s poorer members, Venezuela, has requested an extraordinary OPEC meeting to deal with plunging prices.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza