Analysts say worst is over for oil with price rebound in second half

Standard Chartered expects oil prices to approach US$85 per barrel after July as the oil glut 'evaporates' amid a reduction in supplies from the US and Libya.

Data from the oil services company Baker Hughes showed that US oil rigs in use fell by 37 to 1,109. Shannon Stapleton / Reuters
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The worst of the market shock from the slump in oil is over and prices will rebound in the second half of the year, according to analysts.

Standard Chartered expects oil prices to approach US$85 per barrel after July as the oil glut “evaporates” amid a reduction in supplies from the US and Libya. The bank’s new projections are positive on the market’s recovery, but are less bullish than its October outlook, which said prices would reach more than $100 per barrel because of demand from emerging economies.

"Demand is not collapsing," said Marios Maratheftis, the global head of research at Standard Chartered, at a conference organised by the Dubai Economic Council yesterday. "We saw a supply shock, but the excess supply will evaporate from the market even if Opec [decides to maintain current production levels]."

He said that the excess supply will be less than 1.9 million barrels per day, although he believes it will be “even smaller”.

“Even if no more rigs closed down, we think the month-on-month increase of supply in the US will pause by April,” he said.

The UK-based analyst Energy Aspects forecasts prices to increase this year, but more likely to be around $70 per barrel. "Prices have to come back up quickly because of very strong demand, but the longer prices stay low, the slower the balance will be for the market," Amrita Sen, Energy Aspects's chief oil analyst, told The National.

“We expect US production to fall year-on-year, but there’s such a huge inventory so that will take a while to eat through,” Ms Sen said.

“We expect markets to start tightening by the fourth quarter.”

However, the UK-based Oxford Institute for Energy Studies said that a fall in demand from refineries, set to undergo seasonal maintenance around April, could dampen any recovery in the price of crude.

“The [refinery maintenance period] will come in the next couple of months, and this will affect the products as well,” said Bassam Fattouh, director of the UK-based Oxford Institute for Energy Studies, at the conference.

“Refineries are getting cheap crude currently, and they’re making a lot of cheap products. Refinery maintenance will play a bearish factor [on the oil markets],” said Mr Fattouh.

Refineries must go through maintenance periods to switch between seasonal blends such as from winter blend fuels to summer blend fuels. The process usually begins around February and ends around June and this creates less demand for crude oil.

Refining affects inventory levels not only for crude oil, but also for products made from refining such as petrol. "The issue with the European refineries is if the supply of gasoline is higher than the demand, which is what we're seeing at the moment. So there's always a risk that lower gasoline prices can feed into crude prices," said Mr Fattouh.

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