WTI is strengthening because of issues relevant to the US, but Brent prices won't stay at higher levels for a long period of time, says Praveen Kumar, Head-South Asia Oil & Gas at FACTS Global Energy.
The market is well supplied of crude currently, but if the ongoing issues escalate then prices would rise further, says Praveen Kumar, Head-South Asia Oil & Gas at FACTS Global Energy. However, it is unlikely for prices to remain at elevated levels for a long period of time because many economic problems in emerging nations around the globe would pull it downwards, he added.
Below is the edited transcript of Praveen Kumar’s interview with CNBC-TV18
Q: Where do you see Brent prices headed now? We have seen a bit of surge already because of Syrian concerns, from USD 117 per bbl they have pulled off a bit to close to USD 116 per bbl, do you think a move towards USD 120 per bbl is likely in the short-term?
A: The prices have definitely climbed on tension in the Middle East. After Syria, there are some ongoing supply issues from Libya and Iraq. Pipeline has been obstructed. So, those issues need to be sorted out. If something were to happen in Syria then that can spike prices above it and we go back to allocating risk premium.
There are some ongoing supply issues, the market is well supplied. If tensions were to escalate then we will see reserves being released again out of the International Energy Agency (IEA), we have seen in the past. We are likely to see a spike, but I do not think that the prices can stay in that level for too long. There are too many factors trying to pull the prices down because of all economic problems which are happening, especially in the emerging economies.
Q: In terms of spike that if in case there is geopolitical concern that does fructify, would there be a higher amount of premium that would come into Nymex as oppose to Brent?
A: We were expecting for the larger part of this year that Nymex or West Texas Intermediate (WTI) would play a catch up game with Brent and that has happened. The WTI strength is happening again because of issues that are relevant to the US.
The reality is when you see a spike that reflects what is happening globally that typically happens with Brent because that captures all these issues like geopolitical tensions. So, WTI is going to be of more relevance to things like hurricane in the US or supply bottlenecks. We are likely to see more of a premium or a spike with Brent numbers, which is more relevant to our parts of the world.