See Brent around USD 120/bbl in short-term: FACTS Global

Excerpts from Markets Midday on CNBC-TV18 Watch the full show »

Late last week, Brent scaled up to USD 120 per barrel. It has been around that level for sometime now.

Praveen Kumar, FACTS Global Energy sees Brent around USD 120 per barrel in the short-term.

Also read: Oil may extend gains as supply threats build, says survey

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying video.

Q: Is USD 120 per barrel becoming the average for the next couple of months?

A: I think, yes, that's the reality we will be facing. In the short-term, we are going to look at about USD 120 per barrel for Brent.

Crude oil prices are right now volatile. They are fluctuating between a floor set by the geopolitical tensions that you are seeing mainly because of Iran. There is also supply disruption to oil out of south of Sudan, Yemen and even the North Sea.

The problems, which were there in the Euro-zone- the Greek crisis, are more or less going to be looked at with a lot of optimism now. So, I think over the short-term, we are going to see these supply shocks and the geopolitical tensions far out way. Any kind of economy related crisis is going to be the problem. So, USD 120 per barrel is what we are looking at.

Q: There were some experts who said that a USD 127 per barrel for crude is not ruled out. You spoke about USD 120 per barrel as an average. What is the upside risk that we are possibly working with on Brent crude?

A: Realistically, in the near-term, the upside risks are far more. The market is well supplied. You have this problem out of Iran of course, which has already cut on its supplies to Europe. But that was going to happen regardless. Europe had already announced that they were going to stop taking supplies from Iran. Iran just basically brought that situation forward. What would be interesting to see is what is going to Iran do with that extra 400,000 barrel per day of oil that is sitting with now.

In terms of supplies, there is no real problem with the market in terms of fundamentals. In the near-term, we will see that a lot of these refining cuts, which will happen, especially refiners in the US and Europe will announce maintenance and closures. So, there is going to be reduction in the intake of crude oil that they will require. So, it is more of the extent to which these tensions are going to escalate primarily in the Middle East, what Iran does with the Straits of Hormuz and how much the situation escalates is what will decide how higher up the oil prices will go.

Let's not forget also that on the economic front China has come out with some good news, US is doing well; now you have the Greece bailout which has happened. So, on that front now, there is more to the upside then there is to the downside. That's the reality.

Q: Do you suspect that if it indeed goes towards that USD 125 or 127 per barrel as one of those experts said, a level of USD 125 per barrel would be a natural barrier because there would be demand resistance?

A: Absolutely. USD 125 per barrel Brent price, we saw it for a brief period last year. If that persists this year then the economies to watch out for are India and China. Europe is already in a crisis, US is doing alright because of what's happening locally to get WTI crude because of which refiners are doing okay. But the key countries to watch out for would be China and India.

China, for now, seems to be doing okay in terms of how it is trying to rein in its inflation. But it will be interesting to watch what India does in terms of its Budget announcements and what happens after that. So, I think inflation is a genuine cause of concern for these two countries. If crude oil prices were to go above or consistently stay above USD 120 per barrel then we are going to see some shocks in the market.