Tanker Market: Low oil prices to be a “constant” moving forward says shipbroker

The low oil price environment which has been established over the past couple of years seems set to continue, according to the latest analysis from shipbroker Allied Shipbroking. In its latest weekly report it said that “it’s been another turbulent week for crude oil as the supply glut continues to overshadow the market causing many to wonder if a balance could be reached any time soon. With prices still persistently sticking to levels below US$ 50 per barrel and futures contracts still seeing further losses, it seems as though there are still many who believe not enough has been done over the past month to cut back supply. The latest figures from U.S. shale gas production has to a great extent countered the limited cap in output agreed by OPEC member, while the still excessive global inventory levels reflect to a great extent the need for further cuts before we would be able to see some improvement in price.

According to Mr. George Lazaridis, Head of Market Research & Asset Valuations with Allied, “the main issue continues to be the fact that new demand for oil consumption has remained relatively minor, while it is proving hard to get the majority of oil producers to commit to serious cuts in current production levels. The now rumoured possibility of Libya and Nigeria agreeing to production caps has brought some positive hope on the horizon, however with such great uncertainty as to the level of cuts and time frame few seemed to be convinced this could have an imminent effect”.

He added that “one of the most positive sides which could bring some sort of balance and work in favour of pushing up prices in the long run, is that since late 2014 and with the drastic drop in the price of crude oil new investment has also taken a strong hit. This in effect means that there are minimal new deposits that are being discovered and a delayed catch up game would quickly switch the market from one plagued by an excessive supply glut to one faced with shortages. New demand may well not be moving that fast, but as the natural decline of developed fields intensifies further and given that shale oil fields tend to have a much shorter production life span, we may well find that in the next 20 years we could see another rally in the price of the commodity”, Lazaridis said.

“Obviously given the major shifts and changes being noted in terms of consumption, we would likely see alternative energy sources taking a significantly bigger foothold in the energy mix, while we would likely have a bigger push for further improvements in energy efficiency. For the near term, it seems as though there is little in terms of market fundamentals to push for higher oil prices, while in terms of demand we seem to have found a peak in consumption which is becoming ever more difficult to surpass. The more developed economies are gradually cutting back on their fossil fuel reliance, while the main source of growth which is from the emerging markets does not have the momentum needed given that any major breakthroughs in energy efficiency and technology get transferred automatically to them as well, making the scenario that emerging markets will at some point reach consumption rates per capita similar to those we are seeing in the more developed economies today ever more unlikely. It seems as though the oil market has reached some sort of saturation point, however, there is still some hope moving forward, as if we were to move up a gear in global economic growth we would likely see a lot of these effects mentioned before play a more minor role in the overall market”, Allied’s analyst concluded.