October 8, 2015 / 9:40 PM / 4 years ago

Oil market oracle PIRA sees $75 crude by 2017

NEW YORK (Reuters) - PIRA Energy Group, the closely watched forecaster that predicted the initial collapse in oil prices a year ago, warned on Thursday that the current market slump was setting the stage for prices to surge to $75 within two years.

Rigging equipment is pictured in a field outside of Sweetwater, Texas June 4, 2015. REUTERS/Cooper Neill

Speaking at the group’s annual closed-door client seminar, Founder and Executive Chairman Gary Ross delivered a more bullish oil price outlook than the “lower for longer” theme now held by many industry executives as well as some banks such as Goldman Sachs.

“We’ll need to see $60 to $70 oil in a year’s time to bring forth the supply required for 2017-2018,” he told reporters after his opening remarks at the event, which is closed to the media. PIRA expects oil to hit $70 a barrel by the end of 2016 and to trade at $75 a barrel the following year.

“The industry needs ... nine months from the point where price signals someone to acquire a new rig to finally get incremental production. That signal is not there just yet.”

On Thursday, U.S. crude oil prices jumped nearly $2 a barrel to trade near $50 a barrel for the first time since July, further breaking out of a month-long sideways trading range. [O/R], following PIRA’s more bullish outlook.

PIRA’s outlook stands in sharp contrast to the latest forecast from Goldman Sachs, which calls for “lower for even longer” low prices that it says are required in 2016 to bring supply and demand into balance and sustain a U.S. production decline of 585,000 barrels a day next year.

FROM BEAR TO BULL

At last year’s conference, with the oil industry just beginning to grapple with prices tumbling below $100 a barrel for the first time in nearly four years, Ross was among the first major analysts to suggest that crude could fall much further as Saudi Arabia opted to sustain output and protect its market share rather than cut supply.

Benchmark Brent crude, then still trading at more than $90 a barrel, fell nearly $8 a barrel in the five days following the event. Saudi officials attending the conference had also briefed some participants to expect a deeper slide.

Oil prices eventually fell far further than Ross or others anticipated, dropping to 6-1/2-year lows of $45 a barrel in January as U.S. shale producers kept pumping more oil even as they slashed the number of drilling rigs.

Prices recovered briefly in the second quarter, then fell again this summer to below $50 a barrel, wrong-footing some like Ross who had expected evidence of rapidly rebounding oil demand and concerns about future supply to set a floor.

Ross has been among the more bullish forecasters for much of this year, warning about the thin reserve of spare production capacity that leaves the world vulnerable to unexpected supply squeezes as well as the risk of a future shortage.

He has become even more bullish over the past few weeks, telling delegates at the seminar that PIRA’s forecast for $56.65 a barrel Brent next year would soon be revised up, according to the Wall Street Journal.

PIRA, a widely known boutique firm in energy trading circles, was founded in 1976 and has developed a reputation for oil and gas market analysis influential enough to move world prices. Its annual client seminar is attended by more than 1,000 industry players, from chief executives to fund managers.

Reporting by Jessica Resnick-Ault; Editing by David Gregorio and Richard Chang

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