Brian Madderson - chairman PRA

04 March, 2016
Page 7 

I would not place a bet on the next movement of Brent Crude having listened to many hours of detailed presentations from some of the most experienced analysts in the industry during International Petroleum Week there are just too many variables. What is irrefutable is that OECD stocks have risen by 15% to more than 3bn barrels since early 2014 producing a record overhang.

While demand continues to reduce, albeit still on an upward curve, this stock build will continue. Delegates heard that the Saudis' drive to retain market share by lowering prices and rejecting calls from OPEC to cut output has had an impact on the US frackers, with rig investment down by 60% in the last year. However, the deal negotiated with Iran over nuclear activity has seen their sanctions lifted and oil exports will re-commence this year with varying forecasts of supply volumes.

At present, geo-political events seem to be having little to no effect on market pricing which is in direct contrast to the previous five years. Current thinking is swayed by the massive oil stock overhang, reducing global demand and lack of any agreement to cut supply within OPEC or with other major producers such as Russia.

My take from IP Week is that "lower for longer" continues to be the consensus with a possibility that $20-$25 per barrel could appear during the early part of 2016. The majority, from instant polling, believed that $30-$35 would prevail for around six months and then move towards $40 and possibly $45. Very few projected a swift return to $60 per barrel as indicated by Bob Dudley of BP in his comments to the City.

Therefore we are more likely to see short-term rises in pump pricing from a media-hyped increase in fuel duty by the Chancellor on March 16 than from oil price changes. Low odds are available on a 2ppl increase to 59.95ppl at midnight on Budget day.

PRA has written to the Chancellor reminding him that petrol is tracking around 100ppl average across the UK, and may yet move lower, so a 2ppl duty increase could lift the total tax element towards 80% of the pump price. It was this threshold level in September 2000 which tipped hauliers and farmers into blockading fuel terminals and causing severe supply disruption. You are warned George!





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