Oil prices will remain trapped in the $70-$80 a barrel range in the first half of 2010 as demand recovers more slowly than expected, according to the world’s top oil trading houses.

The view of traders such as Vitol, Glencore, Trafigura, Gunvor and
Mercuria will be scrutinised by the Organisation of the Petroleum
Exporting Countries, the oil cartel, which meets tomorrow in Luanda,
Angola, to discuss its production policy during the northern
hemisphere’s winter.

“Oil prices are likely to be stuck in the current range,” Ian Taylor,
chief executive of Vitol, the world’s largest oil trader, told the
Financial Times. Pierre Lorinet, chief financial officer of Trafigura,
added: “The fundamentals do not support current prices.”

Glencore and Gunvor also see little upside for prices in early 2010,
said people familiar with their trading views. Both declined to comment.

The publicity-shy traders’ outlook is important because they are at the
centre of global flows, and their wide business relationships allow
them to anticipate price cycles.

Although these companies are largely unknown outside the energy
industry, they collectively trade almost 15 per cent of the world’s oil
output, equal to the combined output of Iran, Iraq, Kuwait, UAE and
Venezuela (see chart).

Oil prices have hovered between $65 and $80 a barrel since early July.
They have been pulled up by strong demand in Asia, but weighed down by
lacklustre consumption in the US and Europe. US oil futures closed on
Friday at $73.36 a barrel.

Daniel Jaeggi, co-head of Mercuria, was a little more optimistic than
others, saying the global economy would “start improving in the second
half of 2010″, and that was likely to lift oil prices.

But he warned that while demand in China and India would be strong,
consumption “growth is likely to be somewhat anaemic in” rich countries.

The International Energy Agency, the western countries’ oil watchdog,
forecasts a sharp pick-up in oil demand in 2010, up 1.5m barrels a day
from this year’s level .

However, the traders are less optimistic, with most talking about a 1m
b/d increase. Mr Lorinet said: “We definitely see a pick-up in demand,
but we are not as bullish as the IEA.”

Opec sided last week with the traders, saying that supply and demand
fundamentals “will continue to be weak in the first half of the year”,
before improving in the second half. It forecast a 0.8m b/d demand
increase in 2010. The cartel is likely to keep its production official
level unchanged at tomorrow’s meeting.

Source: Financial Times

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