Intervale Capital Managing Partner Charles Cherington appeared on Fox Business’ Opening Bell with Maria Bartiromo to discuss the current oil markets. Cherington believes, like other oil executives and analysts, things are likely to get worse before they get better.
“The fundamental problem right now is that supply exceeds demand by a considerable amount,” says Cherington. “And production in the United States is going to increase through the duration of this year – with rollover in production not expected till Q4’15 or Q1’16.”
This supply problem is intensified, Cherington says, as crude oil inventories in the United States are hitting levels not seen in 80 years.
But there’s more than one side to the supply and demand equation.
“It’s always remarkable when you are in a situation where oil drops 50% and there’s not a real demand response,” explains Cherington. “So demand is quite anemic, and demand is inelastic with no immediate response.” With supply outpacing demand, Cherington expects things to get worse before they get better.
“Crude oil demand will grow approximately one million barrels per day this year,” he believes, “But we currently have two million barrels per day of excess supply in the system, and another 700,000 [barrels per day] on the way from the U.S.”
Cherrington believes it may be 2016 before we see any type of market rebalance.
About Intervale Capital
Intervale Capital is a private equity firm investing exclusively in oilfield manufacturing and service companies. Intervale has raised $1.2 billion of committed capital and is currently investing from its third fund. Further details about Intervale Capital are available on the firm’s website at www.intervalecapital.com.
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