Brent balanced at $112-113: Fat Prophet

David Lennox, analyst, Fat Prophet, says that there is still significant weakness in the eurozone and in the US, China is still slowing.

He says that the markets are finally fairly balanced at around USD 112-113 a barrel. We still expect the crude to be at USD 110-100 a barrel. Below is the edited transcript of his interview to CNBC-TV18. Q: What is driving crude prices up besides the risk of that we have seen in global equities? What is the geo-political stress that we are working with at this point in time and how much of it is already factored in?
A: There are couples of stories that are circulating around the globe that are impacting Brent price. The first constraint that the market is focusing is going forward there will be production decline in North Sea to a point where we are able to sustain the commitments that companies have to deliver oil so that pushed the price of Brent up in the near term.
Over the last four-five weeks, there is a draw down in the US inventories of oil stock piling and that certainly had an impact on West Texas. Going forward, the North Sea short story will not go away quickly. There is supply constrained and fuel does draw to a close in terms of its production line.
On the geo political side, the Iran story has been the key driver for some more weeks. Iran's ambitions of their nuclear program is too bubbling away into the background and that has not been resolved and might not for some time, and that will always place some potential pressure on the crude basket to go up. Q: How should a buyer peg Brent crude at this juncture, for the month, for the quarter? What kind of an average can you expect from Brent crude?
A: Last time we were looking for a higher downside of risks but the global picture has not changed. There is still significant weakness in the eurozone and in the US, China is still slowing. From demand point of view we expected the oil prices to ease back but they haven't because of the risks.
Going forward there are still downside risks. The markets are not focusing on them. So there is a potential that if the market does refocus on the demand side then in the near term we could expect the prices to weaken. The market is focused on supply side shocks and the geopolitical risks that are in the price.
Finally, the market is waiting for sovereign banks especially the Federal Reserve and the Central European Bank to take some action in terms of quantitative easing. If that happen then the crude prices both Brent and West Texas will rise. Q: What is the sustainable average for Brent crude you see possibly for the remaining part of 2012?
A: We think that the markets are finally fairly balanced at around USD 112-113 a barrel. It's balanced in terms of the risk for the downside and the risk for the upside. When we look at the demand side it suggests that we would be expecting the Brent price to be lower.
We still expect the crude to be at USD 110-100 a barrel, but not much lower than that because every time we have seen it go lower than that there has been some supply shock that pushes the price higher.