Mercuria CEO sees oil price 'closer to $40/bl' in 2021

Oil prices should rise "closer to $40/bl" next year, assuming oil demand recovers from the Covid-19 pandemic and Opec and its partners stick to their output cut deal, trading firm Mercuria chief executive Marco Dunand told Argus.

"If you believe that life will go back to normal in half a year, then oil demand should come back. Probably not exactly immediately to where it was before, but it should gradually go back up to 100mn b/d," he said. "For 2021, with demand at that level, or even 5-10pc down, and combined with the decision by Opec and some other countries to reduce production, we should be able to go back to a market which is probably closer to $40/bl."

Dunand thinks the oil market has weathered the worst of the storm. "Can we see the market plunging again in the next two months because some producing countries do not respect the deal or the pandemic lasts longer than what is anticipated now? Of course it is possible. But in terms of probability, I think there is a better chance that we will see the market going higher gradually over the next few months," he said.

Oil markets remain in shock after the Nymex WTI May futures contract fell below zero last week just ahead of its expiry. Yesterday, US Oil Fund (USO), one of the largest exchanged-traded products (ETPs), told the US Securities and Exchange Commission that it will no longer invest in the WTI June contract because of "evolving market conditions".

Dunand suggests that the May contract's unprecedented plunge into negative territory came about despite "no particular constraint from the physical side of things".

"Analysing what has been reported by the press and others, and with the benefit of hindsight in the aftermath, now we have learned that about 50pc of the inventors in WTI are retail investors, from around the world," he said.

Some of these retail investors can stay in their position until the day before the contract expiry, Dunand said.

"We have learned from the open source reporting in the aftermath, they were taking a position on delivery of oil without having the ability or capacity to take that delivery," he said. "And suddenly, those retail investors had no choice but to exit on the day before the May contract expiry at whatever the market value is. As a result, the oil market went to a level that no one had anticipated would happen, to zero and below zero," he said.

"Storage tanks were not full in Cushing. There was no particular constraint from the physical side of things. It was just a very high concentration of retail investors who needed to get out or roll their position in a very short period of time, and the market did not have the time to adjust."

The full transcript of Argus' interview with Mercuria chief executive Marco Dunand will be published in Petroleum Argus and Argus Global Markets on 1 May.

By Konstantin Rozhnov

source: Argus Media