June 27, 2017 / 11:43 AM / 25 days ago

Interview: Vitol's Taylor sees Brent oil trading at $40-$55 as U.S. output rises

FILE PHOTO -- Crude oil storage tanks at the Kinder Morgan terminal in Sherwood Park, near Edmonton, Alberta, Canada November 14, 2016.File Photo

LONDON (Reuters) - Ian Taylor, head of the world's largest independent oil trader Vitol, says Brent crude prices will stay in a range of $40-$55 a barrel for the next few quarters as higher U.S. production slows a rebalancing of the market.

"Everybody was positioned for a market rebalancing and a stocks draw to happen in the second quarter. And if you look at the macro analysis, that should start happening," Taylor said in an interview with Reuters.

"But so far it hasn't happened and everyone has made the same mistake. Nobody has distinguished themselves."

The Organization of the Petroleum Exporting Countries and non-OPEC producers led by Russia have agreed to cut output by almost 2 million barrels per day (bpd) from January 2017, hoping to bring global oil stocks down from record levels of over 3 billion barrels to a five-year average of around 2.7 billion.

But efforts have been somewhat undermined by rising production from Nigeria and Libya, the two OPEC members that have been excluded from cuts after unrest hit their output.

Recovering production in the United States has also added to the glut as a bounce in oil prices above $50 per barrel spurred new drilling in shale formations.

Taylor said he still expected the market to start rebalancing and stocks to decline in the third quarter. But he was less certain about the fourth quarter, when U.S. shale producers could add more barrels.

"We believe the rebalancing and the stocks' draw should still happen in the third quarter. It was simply delayed. The exceptional production factors - Nigeria, Libya and U.S. shale -have been all larger than expected," Taylor said.

Over the past year, militancy hit the oil-producing coastal region in Nigeria, cutting output by nearly 1 million bpd. In Libya, several militant groups blocked major eastern ports and western oilfields in a long-standing stalemate.

But 2017 has witnessed a striking recovery in both. Nigeria is projecting the highest exports since March 2016 with an August loading plan of around 2 million bpd, while Libyan output topped 900,000 bpd this week with 1 million bpd targeted by the end of July.

The United States, which is not part of the supply-reduction deal, is expected to increase production from shale by up to 1 million bpd, or almost 10 percent of the country's crude output.

"In the third quarter we should draw, but we are unsure about the fourth quarter as U.S. production is likely to have a year-end spurt," Taylor added.

On the demand side, oil consumption growth is still expected to be fairly healthy at 1.3 million bpd in 2017, lending some support to prices, Taylor said.

Vitol traded a record amount of crude and refined products in 2016 at over 7 million bpd, a 16 percent rise year-on-year.

Reporting by Julia Payne and Dmitry Zhdannikov; Editing by Dale Hudson

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