LONDON (Reuters) - Oil prices will likely stay near current levels of $75 per barrel next year in the absence of any supply disruptions as most producers reckon that higher prices would destroy demand and create a new glut, one of the world’s biggest traders said.
“Except for a few nations which are perhaps less important than Russia and Saudi Arabia volume-wise, I don’t see anybody wanting $85 oil,” Gunvor [GGL.UL] Chief Executive Torbjorn Tornqvist told the Reuters Global Commodities Summit on Wednesday.
“I think this sets off unwanted forces: There’s a fear of killing demand, a fear of renewables and a fear of over-production. And you can lose control over them,” he said.
Tornqvist said Iranian oil exports would likely fall to 0.7-1.0 million barrels per day (bpd) by the start of 2019 from more than 2.5 million bpd before U.S. President Donald Trump announced the sanctions in May.
He added that the United States would likely take a pragmatic approach with sanctions, pushing buyers to cut imports of Iranian crude if oil prices soften and easing the measures if they spike.
Sanctions on Iran will take effect from Nov. 4 but it remains unclear whether Washington will grant crude import waivers to some countries, such as South Korea, Japan and Turkey, as during the last round in 2012.
Brent oil prices hit a four-year high of $86.74 a barrel on Oct. 3, but were today trading just under $76.
Tornqvist said weak gasoline margins this autumn were not surprising, adding that he expects overall refining margins to decline slightly next year.
“It is also a reflection that we do see a lot of lighter crude oil floating around in the market. It is not only gasoline, it is also naphtha and propane – all these light fractions are in a bit of a surplus,” Tornqvist said.
The oil industry has been focused on how to best prepare for the upcoming rule change to the quality of shipping fuel in 2020.
New International Maritime Organization (IMO) environmental regulations will cut the sulfur content cap for marine fuels globally from 3.5 percent to 0.5 percent.
The IMO will allow ship owners to continue to burn high-sulfur fuels if they have installed sulfur cleaning kits, called scrubbers.
Tornqvist expects fuel oil demand to remain high, given that scrubbers are being installed on large, long-haul fuel guzzlers.
“It’s not the number of scrubbers you do but on which ships. The majority of bunker fuel that is consumed today goes on 25-30 percent of the shipping fleet,” he said.
The future price gap between cleaner gasoil and more sulfurous fuel oil is wide enough to give an “extreme incentive to install a scrubber.”
Tornqvist said that the group’s overall traded volumes would rise slightly this year and that physical liquefied natural gas would exceed 10 million tonnes.
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Reporting by Julia Payne, Dmitry Zhdannikov and Ahmad Ghaddar, editing by Louise Heavens