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The oil market is recovering but nobody knows when it will rebalance meaningfully

Oil markets closer to balance in 2017: IEA
Market for crude still buoyant: Analyst
Up to 2 years till we see end of oil glut: Analyst

Two years after oil prices began their slide, trade participants are still trying to make sense of the slump that has taken prices down as much as 70 percent.

At an energy conference in Singapore on Wednesday, experts agreed lower prices are finally starting to put the brakes on production growth, but they can't seem to agree on when a meaningful supply-demand rebalancing will happen.

Here's what some of them think:

International Energy Agency's Energy Markets and Security Director, Keisuke Sadamori

The IEA expected high oil stock levels to put a lid on price levels, although the oil market will move toward a rebalance at the end of 2016, Sadamori said.

"We are seeing OPEC increasing production with the growth led mostly by Saudi and Iraq in 2015; now Iran is leading that growth. So what we are seeing right now is that OPEC production growth is offsetting the decline in non-OPEC supplies, (keeping) global supply rather stable."

The agency expects oil demand growth to slow to 1.2 million barrels a day in 2017 down from 1.4 million barrels a day in 2016, a level that was still "solid" nonetheless, said Sadamori.

Gunvor's Head of Market Research and Analysis, David Fyfe

It'll be another six to nine months before inventories are back at "more normal levels" with a sustainable rise in spot prices from the third quarter of 2017, said Fyfe.

"We are still working through underlying surplus in the petroleum market but I think we are getting there," he added.

Even though crude oil futures are now trading in a contango pattern, the forward month premium has diminished, indicating that there is still an oversupply, he said.

Michael Nagle | Bloomberg | Getty Images

Commodity futures contracts are in contango when prices of goods for delivery in the forward months are higher than those in the near months. In the oil market, this indicates an oversupply as traders can buy oil for future shipment at lower prices to sell at a profit later. Low oil tanker rates were also helping to defray some storage cost.

Abu Dhabi Investment Authority's Global Head of Research, Christof Ruehl

It will take "a while, maybe up to two years" for demand-supply to reach equilibrium, Ruehl said.

Ruehl cited "massive" inventory overhang of 300 million barrels that will take one-and-a-half years to work through if 500,000 barrels a day are taken off the market. This drawdown in excess supply will take more than two years if 400,000 barrels a day are taken off instead.

The biggest unknown to the entire rebalancing was how US shale will respond if prices increase, he said.

We're in a no man's land for oil: Citi

Citi's Global Head of Energy Strategy, Seth Kleinman

The market will start rebalancing in the second half of 2016 with excess inventory drawdown to be reflected in weekly Department of Energy inventory figures, assuming geopolitical concerns persist in the producing countries of Libya, Nigeria and Venezuela.

Kleinman also weighed in on the prospect of a production freeze from an informal OPEC meeting later this month in Algeria, saying he was "extremely skeptical" of any change in supply-demand fundamentals from the meeting.

"We are in a bit of a no man's land right now for oil. It's not very bullish but it's not too bearish ... the market is going to get whipped around by whether its' a big move in the dollar or a headline about a not-particularly-significant agreement totally devoid of all details," he said.

"Given how well the oil price respond to every single murmur or rumor about a looming agreement, why not go ahead and have another meeting; it works very well," he added.

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