Oil to range around $110/bbl in short term: Argus Media

Crude oil prices have moved up over the last few days owing to supply side issues. Azlin Ahmad of Argus Media feels if there is further unrest in the Middle East, prices may rise a couple of dollars. However, he is not very hopeful of seeing oil prices going up significantly and added, "I think that it is going to be tough in the short-term for oil prices to significantly go up, because the market looks quite balanced fundamentally right now."

Going forward, any rise in crude prices may be triggered by economic data coming out of the US and China, he opined. Besides, if the Middle East unrest is not aggravated further, prices may hover around USD 110, believes Ahmad. Here is the edited transcript of the interview on CNBC-TV18. Q: I want to ask you about the supply worries that are stemming from tensions in the Middle East etc. and how that will continue to keep crude prices on the boil. Is that a big concern in your mind?
A: We have already seen the crude oil prices breakout from the recently well-defined range and have risen higher because of the lower Organization of Petroleum Exporting Countries (OPEC) production and lower Saudi output in November and December.
The supply balances have tightened a bit. I think that going forward, if there is continued unrest in the Middle East we could see prices rise maybe a couple of dollars. But, I think that it is going to be tough in the short-term for oil prices to significantly go up, because the market looks quite balanced fundamentally right now. Q: Once again you expect crude to get into the range. The range could be on the higher side. Is that your expectation for how crude is likely to move and if yes, what will be the range?
A: I think that Brent prices will probably go up about a couple of dollars if there is increased Middle East unrest. If not, I think we will continue to hover around the mid-USD 110 range where we are right now. In the short-term, the market is looking more at what is happening economically with the US and also importantly with China. The manufacturing data recently came out a little bit lower than expected. That did not pull prices down but, it did put a cap on the gains and if more data comes out in the next couple of weeks that shows that the China recovery is not accelerating as expected, then I think we could see prices slip down a bit.
I do not see very volatile prices in the short-term. It could fluctuate maybe a few dollars up and down from where we are right now, but direction wise a lot of the market outlook will depend on the economic data coming out from the US and China. Q: A lot of people believe that the movement on crude so far has been restricted in the near-term because of the data that is expected to come out. China, like you pointed out, has already been released but how do you think the US jobs data would affect the outlook on crude if in case the jobs data is negative?
A: At this point where we are today, I think that the jobs data could have an impact on the crude prices because we are not seeing anything else in the very short-term, that is headline news or something that could move prices. The markets itself is just looking at what the jobs data will be later today.
But the indications or expectations from some analysts and from the market seems to be that it should be positive. I think that if the jobs data comes out to be lower than expected or more negative than expected, then we could see prices come down towards the end today or maybe next week. At this point it is pretty crucial just because there is nothing else in the very short-term that the market is looking at. Q: Over the medium-term how do you expect the balance between demand and supply to be in the oil market? You indicated that current fundamentals look fairly balanced. Over the medium-term what is your expectation?
A: US crude production has increased faster than anyone expected. For this year, the expectation is that US crude production will rise by about 890,000 barrels per day and that is the biggest annual rise ever seen for crude production. So obviously it will have some impact on both Brent and WTI prices. I think it will prevent a sharp spike in prices for 2013. Towards the end of 2013, there are pipelines that are due to come on-stream that will take crude away from Cushing which is a WTI delivery point out to the Gulf coast.
That should push WTI prices a bit higher and narrow slightly the WTI discount to Brent compared to what we saw in 2012.