Ahead of the Organization of the Petroleum Exporting Countries (OPEC) meet scheduled later for today, David Lennox of Fat Prophets said that he does not see any action coming out of this meeting.
Post the meeting there could be a knee-jerk reaction by the market and the prices can see a downside for Brent of about USD 40 per barrel and on the upside of about USD 55 per barrel, he said.
Below is the transcript of David Lennox’s interview to Manisha Gupta on CNBC-TV18.
Q: What is your sense on what kind of an agreement the markets are preparing for right now?
A: If you have a look at the history of Organization of the Petroleum Exporting Countries (OPEC), one would have to suggest, just looking at the prices as we have seen them trading at the moment, one would suggest that we are not going to see any action coming out of the OPEC meeting later on this evening.
So, we think that probably you are going to be the response that we will see out of OPEC.
However, if there is any possibility of a chance of a response and a positive response, it is going to come with this meeting because the surplus that we have seen in the crude market of recent days has closed into, we think, about a million barrels and this is well down on the 2.5 million barrels that we saw at the start of the year. So, that is quite a manageable surplus for the OPEC members we believe to cope with. And we might just see on the off chance, some sort of positive announcement come out of OPEC tonight that we are not really relying on that.
Q: There are some statements coming in from the Iran Oil Minister that said there is no request for cut in Iran output from actual levels and that some of the proposals are acceptable to Iran as well. Iran, of course, has been a wild card. What is your sense on what kind of an agreement could we see, what kind of a positive announcement are you preparing for?
A: It is really an off chance that we would see it, but we would be expecting to see at least a ceiling that they announced that they were looking at of about 32.5 million barrels being bought into play. And that would see OPEC have to cut production by about 1.5 million barrels. So, if that was the case, we would see a very positive response in the crude pricing.
However, again I reiterate, we are just not expecting to see that sort of an announcement and of course, if they do announce it, we then got to wait to see the actual numbers to see that they are going to stick to what they have promised. And again, that has been another problem that OPEC has had over the years.
Q: If we do not hear an agreement then going into the future, how credible would the cartel remain and would they ever be able to talk the prices up or down in that event?
A: We always say the same thing and OPEC meeting after OPEC meeting, we see the rhetoric prior to the meeting and the oil prices are reacting to that rhetoric. We then see the response to generally what has been long period of little action in terms of setting of policy. And unfortunately, it is just the way that the oil markets work.
OPEC, if they did make a decision and did stick with it, they could have a significant impact on the oil price. Either positive as we have seen in the past and also negative as we have seen in the past. So, that is why the market is always jittery around these meetings.
Q: So, going with the view that you have, opinion that you have, what is your sense on how the crude oil prices will react by the end of this day?
A: Certainly, we think we will see a knee-jerk reaction and we are looking at a price, on the downside for Brent of about USD 40 per barrel and on the upside about USD 55 per barrel.
We do believe that it will be knee-jerk as we have seen in the past where we have seen surprise announcements and once the markets start to settle down and realise that we have got to then look to real action, we think that the prices will probably drift back towards the rangers that we have seen them trading in for a reasonable part of the last couple of weeks and that is between about USD 40 and USD 50 per barrel.