Vitol sees oil to rally as Opec, Venezuela cause shortage

Bloomberg

The world’s largest energy trader says oil prices are set to rally further as Opec output cuts and American sanctions on Iran and Venezuela cause a “shortage” of the low-quality heavy crudes refiners rely on.
“From here there’s probably the potential to be a little bit higher,” said Russell Hardy, chief executive officer of Vitol Group. “Oil supply is going to be pretty tight until the third quarter.”
While Vitol painted a bullish view for the first half of the year, it warned shale supply could turn the market around in the fourth quarter because new pipelines linking the Permian with the US Gulf of Mexico coast will allow drillers to boost production. As the who’s who of the oil industry descend on London for the annual International Petroleum Week of conferences, meetings and parties, traders are dealing with an international crude market that’s increasingly divided.
Texas and other shale-rich states are spewing a gusher of high-quality crude — light-sweet in the industry parlance — feeding a growing glut that’s bending the global oil industry out of shape. Refiners who invested billions to turn a profit from processing cheap low-quality crude are paying unheard of premiums to find the heavy-sour grades they need.
“You have a squeeze on heavy supply probably for the next six months,” Hardy said in a Bloomberg TV interview. “The Opec decision has meant there’s less available, the Iranian situation has meant there’s less available, and the Venezuelan situation now is adding to that.”
The heavy-light crude conundrum is turning the oil market’s usual price patterns on their head. The Brent-Dubai exchange of futures for swaps, which reflects the heavy-light spread, narrowed to an almost 9-year low earlier this month.
The light-heavy mismatch is good news for Opec giants like Saudi Arabia and Iraq, who don’t produce much light-sweet, but pump plenty of the dirtier stuff. Car drivers could even benefit, because too much light-sweet crude often leads to too much gasoline, and lower prices. On the flip side, truckers may find themselves short-charged, as refiners prefer heavy-sour crude to make diesel.
While less well known than industry giants like Exxon Mobil Corp. and Royal Dutch Shell Plc, Vitol is the world’s largest independent oil trader, handling more than 7 million barrels a day — enough to meet the combined consumption of Germany, France, Spain and Italy.