Nov 30, 2016 06:55 PM IST | Source: CNBC-TV18

OPEC may cut or freeze output; sub-$40/bbl a worry: Economist

Jonathan Barratt, Economist & CIO, Ayers Alliance believes that they would have to do something - be it a supply cut or production freeze.

With all eyes on the OPEC meet later in the day, Jonathan Barratt, Economist & CIO, Ayers Alliance believes that they would have to do something - be it a supply cut or production freeze.

However, in case no deal comes through then there would be pressure on crude oil prices and market would sell oil, says Barratt in an interview to CNBC-TV18. If oil goes below USD 40 per barrel it would be a concern for OPEC, he adds.

If some sort of deal is struck then crude would be around USD 55 per barrel, says Barratt. Currently, oil is a range, he says.

Below is the transcript of Jonathan Barratt’s interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: Ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting, how are you viewing crude and on Brent Crude itself, what is your near-term target?

A: There is a lot of volatility about it and what we see is a lot of news that is hearsay, but we know that there is a lot of dissention in the ranks of OPEC and whether or not that will come up with the deal. So, when I look at the Brent market, it is still trapped in a range, but what concerns me the most is that OPEC deliver no freeze and OPEC deliver no supply cuts. Of course, as a result of that, we will see prices come under considerable amount of pressure. I feel that they will have to, but in the basis that they do not come up with anything, the market is ready to sell crude.

Latha: What is your best sense? Do we get an output freeze at all?

A: We will get something, whether it is a supply cut or a freeze. I believe that OPEC really needs to address it, address obviously the weaker members. Saudi Arabia, itself, also has to address the fact that it is floating its oil production so that is very important. So, in the interest of the OPEC members and Saudi Arabia, deal needs to be done. So, I get a sense that something, whatever it will be, will occur and that should saw or basically hold prices where they are at the moment. As I said, the more we hear on the wires that there are concerns, we put in a deal together the more we get conflicted views that the deal will not be done.

Latha: But nevertheless, crude of both varieties are not really able to pierce USD 50 per barrel. So, that does USD 50 per barrel remain a roof for a better part of the coming quarter, the earlier part of 2017?

A: It is a very interesting thing because we know that anywhere below USD 40 per barrel, there are concerns for OPEC and that would promote more discussion if they do not come up with the deal. We know that anywhere around USD 60 per barrel, it is a green light for oil and shale production. So, when I like it, the question that is always voiced to me is where do you think crude oil will clear in 2017, particularly the first quarter? And I get a feeling, that has to be around about USD 55 per barrel. Now, that is based on a deal that gets done for OPEC to reduce supply or have a supply freeze. But if they do not do it, then that will be revised significantly lower. So, a lot of it actually hinges on what actually, OPEC does tonight.

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