Volatility in oil to continue: Purvin & Gertz

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Volatility in oil to continue: Purvin & Gertz

Victor Shum, Senior Vice President at Purvin & Gertz feels that there is a possibility that the crude prices may come down but that will depend on the US government’s rescue plan.

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Victor Shum, Senior Vice President at Purvin & Gertz, feels that there is a possibility that the crude prices may come down but that will depend on the US government's rescue plan. He added that he will not be surprised to see considerable volatility in oil as more details pertaining to the US government's rescue plan come in.

Here is a verbatim transcript of the interview with Victor Shum on CNBC-TV18. Also see the accompanying video.

Q: How are the signs looking for crude from here on? How would you look at crude's short term trend, and how would you look at it for the rest of 2008?

A: In the short term, oil futures have risen together with the rising financial tide. If one looks forward, the US Government's plan to bail out the financial sector was simply to pump a whole lot of cash in the US economy. It will be inflationary in the long term and that should be supportive for oil as investors look into oil as a hedge against the weakening dollar and the rising US inflation. However, the fact is that the oil futures trading landscape has now changed significantly. The credit crisis has affected hedge funds capacity for playing the oil market and big players such as Morgan Stanley and Goldman Sachs could possibly cut back on their own proprietary commodities trading. Therefore, the gains in oil futures would be limited by lowered liquidity and continuing worries about oil demand. So, the pricing will remain actually above USD 100 per barrel to around USD 110 per barrel by the time we reach December when the Northern Hemisphere winter season will drive off demand and we will see some strengthening in prices towards the end of the year.

Q: Would you see USD 90 per barrel getting challenged at all in the run up to that figure that you are seeing?

A: There is still the possibility that the pricing may come back down. The details of the US government's rescue plan need to be watched out in the next few days. With the US Congress there are a lot of norms as to how the government would bail out all these bad debts and so the next few days I won't be surprised to see quite a bit of volatility in oil as we learn more about the details of the US government's rescue plan.

Q: Has the fundamental outlook on oil changed in the past 2-3 weeks or is it just at the mercy of the US bailout package and currency movements?

A: The fundamentals haven't really changed that much. Besides this, the thinking is that these financial sector troubles--the consumer confidence and business confidence world wide will be negatively impacted and that may also negatively impact growth on a world wide basis. Hence, fundamentals in a way have weakened a bit and weaker fundamentals will limit gains in oil futures because of the weakening of the US dollar and the inflationary impacts of the US government's rescue package.