Oil market rebalancing likely in 2017: Vandana Hari, Independent Analyst

In a chat with ET Now, Vandana Hari, Independent Analyst, says once the Fed rate has gone off the table, it is putting quite a bit of volatility in the US dollar. A weaker US dollar had propped up oil prices. Edited excerpts

ET Now: What according to you is dictating crude price movement right now?

Vandana Hari: As we have seen, overnight a drop in more than 2 million barrels within US should actually have been bullish for oil prices but it is almost a strange reason. It was smaller than expected and hence it would put pressure on prices. To my mind what is happening really is if you go a little beyond these day to day figures, the whole story is about the fact whether global oil markets are on the cusp of an equilibrium or not. The jury is still out on that. I see increasingly more voices saying it is going to rebalance in the second half. I think a lot of that is based on expectations that the major supply outages that we saw recently starting in May essentially when a lot of Nigerian-Canadian production went off line. It is based that on the expectation that those outages will persist. Personally, I am sceptical about that. Again I am not in the camp which thinks demand will continue growing at a robust pace this year. General economic growth around the world seems to be faltering. So of course you have to connect a few dots from economic growth globally if it is slowing down. Overall we can say for certain it does not mean a Brexit related contagion. It does not bode well for demand growth. Keeping all of these things in view, personally the bottom line is, I am quite sceptical of a rebalancing happening in the second half of this year. It may happen in 2017.

ET Now: If I look at the latest data which has come from various monitoring agencies including yours there seem to be disconnect between demand and supply, there is more supply and there is less demand if that is the situation why crude prices from the recent low they have appreciated by nearly 70% to 80%. The year low was sub 30 now we are at about 45-46.

Vandana Hari: Yes so a couple of factors then and you are absolutely right I think the world is still in oversupply but the amount of oversupply has gone down a little bit. Now exactly by how much again you are going to have different figures from different agencies and authorities and what trigger that was as I mentioned that was close to more than 3 million barrels per day of supply that got removed from the markets because of the Niger Delta militancy problems in Nigeria. Then we had that wildfires in Canada and problems in Libya because of the political instability. Libyan production compared could have been 1.6 million barrels per day. It used to be around 600,000-700,000 barrels per day and now it is around 250,000 barrels per day. So a lot of the oversupply has come down and of course the market is also looking at what is happening in the US because as we know, the tight oil production from the US was the biggest contributor to oversupply over the past two-three years. The US production is on course to drop by 700,000-800,000 barrels per day this year. That is what the market is keeping an eye on and as a result, all of the supply outages in May have helped push crude prices up. The other one has also been the contribution of the US dollar. Once the Fed rate has gone off the table, it is putting quite a bit of volatility in the US dollar. A weaker US dollar had propped up oil prices as well.