OREANDA-NEWS. Leading trading firm chief executives say oil prices should recover this year, but trading conditions may be less advantageous than in 2015.

"The down market is behind us," Gunvor chief executive Torbjorn Tornqvist told a conference today. "It is the beginning of the end of that. The predominant driving force in the market going forward is when not if rebalancing occurs, and supply and demand balance," he said.

"That is why the buyers are coming in and saying now is the right time and the sellers are saying it is too early. We are going to have a lot of volatility going forward. But, from here on, the trend is up." Yet rebalancing will not be as fast as some say, because inventory levels are high and building, Tornqvist said.

"In the oil market, we are seeing rebalancing factors and we have seen the bottom," Trafigura chief executive Jeremy Weir said. "Supply and demand will be crossing and more balanced as early as the third quarter, the end of the third quarter — the fourth quarter," he said.

Weir highlighted the impact of lower prices on supply, as the US shale industry has laid off staff and drilling rigs, and is less able to attract capital for investment. Mercuria chief executive Marco Dunand said supply will be affected by successive 20pc/yr spending cuts upstream.

"Most people anticipated prices recovering in 2017-18. But, actually, earlier this year, when the market hit the lows, the back end of the market was falling faster than the front end, which is a very unusual move that killed a lot of projects," Dunand said. He sees oil prices at "$50/bl-plus next year".

Glencore oil chief Alex Beard underlined "the consensus in the industry that stocks will stop building over the second half of this year". But he said this may "not be exactly the same as the market rebalancing" because stocks have built by 3bn bl over the past 18 months. "There is a large stockpile to eat through, so there is no immediate need for a strong rally in prices." Beard said. "Looking into the future, we hopefully see rebalancing, but it is not going to come particularly quickly."

Castleton chief executive William Reed said the market now knows "the price it needs not to go above to stimulate massive shale investment. It is pretty much there right now, if not close to there, on the back end of the curve. We are still going to have to balance the market on the front end, but at the same time not simulate massive investment and growth in US shale production."

But Reed is reluctant to predict the oil price. "Shorting technology is sometimes painful," he said. US technology and innovation has made shale oil output resilient. Efficiency in the shale sector "exceeded engineers expectations in terms of productivity", Reed said.

Efficiency in the industry means "that $60-70/bl will secure oil flow for the foreseeable future. We actually do not need $100/bl oil. We need less," Tornqvist said.

Tornqvist sees the surplus shifting downstream from crude, with "product stocks building in the middle of this year, to some extent compressing refining margins" and the refining business will not be as profitable as last year.

Trading conditions last year were particularly favourable, partly because of the contango in the market — with prompt prices at a discount to those further forward — and strong refining margins, Beard said. The contango market is not "as simple as some people would have you believe, that in a contango market you just store oil and make money. It is all about the marginal cost of storage and how you actually use the contango market. But there is no doubt that a contango market is easier to trade in than a backwardated market and is definitely a following wind for trading profits and trading conditions."

Positive refining margins benefited trading firms even without refining assets, because the refiners were "making money and if you have industry participants making money then the market becomes a little easier". In addition, strong margins meant refiners were running plants hard in 2015, leading to unexpected shutdowns — "market dislocations, which are the kind of volatility that we like", he said.

Gunvor expanded geographically and grew its business in 2015 and "hopefully we can continue to do so", Tornqvist said. "Circumstances last year for trading companies were very favourable. I am not so sure it is going to be as easy this year as last year. There are some signs that we will have to work a bit harder," he said.

But Weir said Trafigura had a "strong start to the year" with volumes increasing.

The company officials were speaking at the FT Commodities Global Summit.