Fear premium of $10-15 in current oil price: Logic Advisers

Excerpts from Your World at 10 on CNBC-TV18 Watch the full show »

Hopes of a Greek bailout deal and rumblings from Iran over crude supply blockages are elevating Brent crude prices. A slew of recent upbeat economic data has helped US crude advance, although a report on Thursday that US consumer prices rose the most in four months in January due to a spike in gasoline prices raised concerns that higher energy costs could slow the economic recovery.

In an interview to CNBC-TV18, Bill O'Neill, the founder of Logic Advisers gives his short-term outlook on crude.

Below is an edited transcript. Watch the accompanying video for more.

Q: How much of this price increase would you apportion to the improving economic data that we have seen the hope of a resolution regarding Greece over the course of this weekend and how much would you apportion to the Iran situation, the geo-political premium?

A: The market is more geo-politically driven than driven by the economic factors. What we have recently is a combination of both. The US data has been quite encouraging over the past couple of weeks. We have even seen a few decent numbers out of Europe and when you combine that with all the geo-political uncertainty which is not going to go away you have a perfect storm.

I would say there is probably at least USD 10 and may be USD 15 in what I would describe as a fear premium in the current prices of oil. That's all feeding on itself and now we are starting to see some technical strength drawn to the market as well. That's helping bring prices up. If we break a little higher up over that USD 103.50 per barrel here for the WTI on the NYMEX, you could see a quick spurt over USD 105 per barrel.

Q: We are heading towards an embargo and how much is that going to hurt supply, will the other Saudi Nations or Middle Eastern nations make up for that gap in supply. What impact do you see all of this having on crude considering that some political experts have even said that there could be the case of a strike against Iran by Israel?

A: The concerns about Iran disrupting supplies and closing the Strait of Hormuz are over done. I don't think they can afford not to sell as much oil as they possibly can. They are just going to continue to play this game. There are the current sanctions against them and that's going to make it difficult for them to put out as much oil as they would like and it is going to tighten up oil supplies and that's always going to help the Brent contract in particular in London.

We are for a long period of time going to deal with the fear of a spring offensive in what many people describe as the Arab spring that perhaps Israel not saying certainly this is going to happen but there is some concern about that. The geo-political fear lurking in the background is going to be with us and that's going to keep that premium high even if there is no disruption in actual supplies.

Q: Geopolitically speaking, fundamentally speaking based on the US data if not Europe and China and technically speaking, what are some of the key levels you are watching out for over the course of the next few weeks?

A: So USD 103.50-103.75 per barrel if you want to talk technically is the key level here and then over USD 105 per barrel but watch the US Department of Energy (DOE) numbers. We did have some improvement in the product off-take here in the US last week. That's been a big laggard and has been a concern for anyone on the bullish side of the market.

If we start to see that improve that would be another plus for the market. To me this is not so much a supply-demand market as more related to what's going on certainly with the geo-political situation and also to a degree with the situation in Greece. Clearly all markets are just being influenced by the coming and goings of Greece.