March 25, 2019 / 5:00 PM / 4 months ago

Trading firm Trafigura sees oil price rising to $70s/bl in 2020

GENEVA (Reuters) - Global commodities trader Trafigura Group sees Brent oil staying around current levels, about $66-$67 a barrel, or slightly higher for the rest of the year, and rising to the $70s in 2020, its co-head of oil trading Ben Luckock said on Monday.

Trafigura logo is pictured in the company entrance in Geneva, Switzerland March 11, 2012. REUTERS/Denis Balibouse/File Photo

“We’re gently bullish. We have a more stable and almost sensible market. We traded between $50 and $87 a barrel last year. $87 was probably too much ... The Iranian oil waivers caught many people by surprise,” Luckock told a briefing for journalists at the company’s Geneva headquarters.

“We’re now trading $66-$67 a barrel, I think that’s a relatively sensible price.”

After the United States re-imposed sanctions on Iranian oil in November, Washington then issued waivers to a number of key importers.

Luckock warned that several factors could still throw predictions off balance such as whether Iranian waivers are renewed and the stability of Libyan and Venezuelan output.

Washington recently imposed sanctions targeting Venezuela’s oil industry in an effort to force President Nicolas Maduro out of office in favor of opposition leader Juan Guaido.

“Next year ... it (oil) will be trading with a 7 in front of it,” he added.

Trafigura’s chief economist Saad Rahim said the Geneva-based firm expected a tighter market in the second half of the year but gains would be capped by weaker macro indices.

“We have U.S. production slower and flatter and ramping up in the second half. We have a deficit in our balances even before OPEC extends but I think we are rangebound given all the macro headwinds.”

IMO 2020

Looking ahead to next year when a new, lower sulfur cap on shipping fuels is due to take effect, Trafigura’s Rahim expects a deficit in diesel capacity of around 350,000 barrels per day (bpd), which could be met by China.

The new rules imposed by the International Maritime Organization mean that shippers cannot use fuel with a higher sulfur content than 0.5 percent unless the vessel installs a sulfur filter, known as a scrubber.

As a result, demand for high sulfur fuel oil, the main fuel on ships, is expected to drop sharply in favor of diesel and very low sulfur fuel oil, a new type of fuel that is starting to be produced in various different blends.

“We think there is enough capacity to meet that extra demand, particularly in China but that does require Chinese refineries to respond to market signals,” Rahim said.

China’s refineries are constrained by refined product export quotas.

“On the fuel oil side, once you have accounted for increased use in power generation you still need to dispose of 350,000 bpd of fuel oil ... that has no home.”

Trafigura has invested substantially in new ships with scrubbers to meet these requirements.

“We took a significant position around freight ... We have optionality on $1.7 billion of steel, which includes predominantly crude and product tankers as well as gas carriers,” Rasmus Bach Nielsen, head of wet freight shipping, said.

Trafigura expects 25 out of the 35 new crude and product tankers that it has leased to be delivered by end of the first quarter.

Editing by David Evans

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