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Oil price optimism grows as Brent climbs to 2016 high

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7df5ca36-00d5-11e6-99cb-83242733f755Please share this article with others using the link below, do not cut & paste the article. The heads of the world’s largest oil trading houses sought to draw a line under nearly two years of falling prices on Tuesday as Brent crude rose to its highest level so far in 2016.

Vitol, Trafigura, Mercuria, Gunvor, Glencore and Castleton, which sell enough oil to meet almost a fifth of global demand — were all but unanimous in telling a Financial Times conference in Lausanne that oil prices were unlikely to revisit the sub-$30 lows they hit in early January.

Brent crude oil, the international benchmark, climbed by nearly 4 per cent to hit a four-month high of almost $45 a barrel on Tuesday amid mounting expectation of a deal to freeze production at this weekend’s Opec summit in Doha.

Prices fell back in Asian morning trading on Wednesday with Brent crude down 0.8 per cent at $44.35 a barrel by mid-morning. It is still up 12.2 per cent in the month to date.

West Texas Intermediate, the US marker, was down 1.1 per cent at $41.71 a barrel having touched $41.83 on Tuesday. It is up 9 per cent in the month to date.

Igor Sechin, head of the Kremlin-backed oil company Rosneft, echoed the traders’ view, and argued that a price of at least $50 a barrel was needed to avert future supply shortages.

“The oil price is growing. I think everyone is expecting the successful outcome of our work,” Mr Sechin told the FT conference in an apparent reference to a possible deal on an output freeze this weekend. “We will need higher price levels than $45 or even $50 a barrel.”

The remarks came ahead of a weekend meeting in Qatar when Opec kingpin Saudi Arabia and other big oil producers, including Russia and Venezuela, will try to freeze output in a bid to hasten the end of an oil glut. This is potentially the first significant concerted action to stabilise prices since the oil price went into freefall in late 2014.

Mr Sechin did not directly address the meeting but said there were signs the market was tightening already as US output contracted.

A deal looks increasingly likely in Doha even if Iran, which is raising output after the end of years of sanctions against its oil industry, refuses to cap its output immediately.

The crash, in which oil fell from above $100 a barrel in mid-2014 to below $30 in January, has ravaged the budgets of producer countries, led to widespread lay-offs in the oil industry and stoked fears of a deflationary spiral in the world economy.

Traders remain cautious about the extent of the recovery, with few predicting a return to $100 crude. Alex Beard, Glencore’s head of oil, said that while supply and demand were likely to balance in the second half, crude and refined stockpiles had increased substantially.

He expressed scepticism that the meeting in Doha would necessarily produce a further rise in prices. “I can’t see a huge opportunity for a positive surprise out of Doha. I think a freeze . . . doesn’t actually change the dynamics of the oil market to a great extent,” he said.

But the collapse in prices is finally showing signs of tightening the market, as companies have shelved more than a quarter of a trillion dollars in investment plans and the US shale industry goes into reverse.

“The driving force for the market going forward is when, not if, the so-called rebalancing occurs and supply and demand gets back into balance,” Torbjörn Törnqvist, chief executive of Gunvor, told the FT Commodities Global Summit.

He cautioned that the costs of oil production had come down, suggesting a rebound would not lead to triple-digit prices. “If $100 was a benchmark before, I believe a level like $60 to $70 will secure oil for the foreseeable future,” he said.

Jeremy Weir, chief executive of Trafigura said, however, that it was his belief that, barring a recession or another major change in the global economy, the market had turned. “I do think we’ve seen the bottom,” he said. “Unless a catastrophic event occurs.”

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