See crude touching $140/bbl by Friday: Experts

Crude is inching towards newer highs, blue-sky territory and the rupee has been weakening in accordance with that and has now slid well below the 43 mark. Victor Shum of Purvin & Gertz talks about the almost mind boggling run on crude.

Excerpts from CNBC-TV18's exclusive interview with Victor Shum:

Q: The calls are getting louder and louder for this to top out, but it does not seem to be doing that?

A: It certainly does not appear to be topping out, there is no indication in the markets that we are going to see a pullback or a collapse in pricing anytime soon. My expectation in the next couple of days before this week is over is that pricing will get stronger.

We have a long weekend coming up in the US, Monday is the Memorial Day holiday in the US and ahead of a long weekend we can expect traders to buy more so that there won't be a cutshort. So we expect the week to finish very strong and possibly breaking the USD 140/bbl psychological level before the week is over.

We will see whether it happens in this week and if I look beyond into the next few weeks into the summer time, I think the momentum is for even stronger pricing. We are heading into the summer driving season in the US and later on the hurricane season. So there are plenty of potential bullish factors to continue to drive this bull market.

It is a bit scary at this stage to see these lofty prices and we have seen new records practically everyday and I think the markets is eventually setting up itself for a major pullback eventually when we have prices go up so fast and so much, the pullback will be just as sharp.

Q: Is that your sense? How much do you think we might see in terms of prices if there is a pullback because this big run has also been accompanied with frenzied voices almost of how tight the demand-supply situation is and how crude indeed needs to move higher?

A: I think it is the high oil prices that have caused businesses to lose a lot of a confidence. In particular when we see more airline companies are getting into trouble like yesterdaywhen reports in the US about American Airlines cutting back capacity laying off 1000s of people due to sky hike in jet fuel prices and reduced demand, the bearishness in the markets may come to the fore and cause prices to pullback. The uncertainty is when they will happen and how much the pullback will be.

Q: What do you think we are going to see first, USD 150/bbl or USD 100/bbl?

A: I think it is certainly a possibility in the coming months well into the summer, USD 150/bbl is a level that we could reach. We are now at USD 135/bbl and with stronger and seasonal gasoline demand in the US and some weather related problems, we will have the right mix of bullish factors to take prices to even loftier levels. I think it is possible that when we get into the autumn season when the summer driving season dies down and the hurricane season is over and we may focus more on the bearish aspects in the markets, we could see pricing pullback.

I do not really foresee a collapse in pricing because the oil market globally speaking is structurally tight. We still have oil demand growing on a worldwide basis even though the demand growth has weakened. Supply growth of crude oil has been quite restrained and so there is this catch up game of supply trying to catch up with demand and it is this structural tightness in the oil market that continues to attract investors to pile money into oil and that really explains this oil price rally that we have seen in the last few weeks. It is speculative activity on top of tight fundamentals causing oil to reach completely new territories.