Oil rout over, OPEC aims for $50 anchor, says PIRA's Ross

Mon Mar 7, 2016 8:07pm EST
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By Jonathan Leff

(Reuters) - Major OPEC producers are privately starting to talk about a new oil price equilibrium of $50 a barrel, adding to signs that the market's long, deep rout is officially over, says one of the industry's leading prognosticators.

Gary Ross, the founder, executive chairman and chief oil soothsayer at New York-based consultancy PIRA, told clients 2-1/2 weeks ago that he reckoned the "lows are in" for crude, which was then about $30 a barrel. U.S. futures CLc1 have rallied since then to close at nearly $36 on Friday, with a handful of analysts also cautiously calling a bottom.

In an interview with Reuters, Ross said oil should recover to $50 a barrel by the end of the year, potentially aided by eventual supply cuts from leading producers among the Organization of the Petroleum Exporting Countries (OPEC).

"They want $50 oil, this is going to become the new anchor for global oil prices," said Ross, one of the industry's most respected forecasters for his bold price predictions and decades-long history of consulting with OPEC members.

"While it may not be an official target price, you’ll hear them saying it. They’re trying to give the market an anchor."

If Saudi Arabia and other powerful Gulf OPEC members begin invoking $50 as "fair price for producers and consumers" - a once-favored phrase that has been absent for several years - it may could signal the end of an unusual and extended period in which the group abandoned efforts to manage the market.

After years of signaling satisfaction with prices hovering at around $100 a barrel, top exporter Saudi Arabia in late 2014 led OPEC in its most dramatic policy shift in decades. No longer would the world's top oil exporter, or its OPEC allies, agree to cut their own production to support such high prices, which they feared would erode their share of the world market.

Instead, they would keep pumping and allow prices to fall. While they did not anticipate the longest and deepest oil price rout since the mid-1980s, the effort has at last begun to curb the rise of rival higher-cost producers such as U.S. shale drillers, another sign that prices may have found a bottom.   Continued...

A worker handles the nozzle of a fuel dispenser at a gas station, which belongs to Venezuela's state oil company PDVSA, in Caracas, February 12, 2016. REUTERS/Marco Bello