Brent prices could slip due to eurozone crisis: Argus Media

Azlin Ahmad of Argus Media sees Brent crude prices slipping further in the future because of the crisis in the eurozone. “The euro zone crisis has put pressure on the Brent prices,” she explained.

Ahmad tells CNBC-TV18 that the fundamentals of crude is what is driving prices, and not geographical factors. “Many countries led by US, China and even Saudi Arabia have built stocks, so this has all reduced the concerns of supply tightness,” she said. Due to these reasons, Ahmad doesn’t see a near-term surge in Brent crude in the near-term. Brent recently slipped to as low as USD 106 per barrel, but regained its footing and is currently trading around the USD 108 per dollar mark. This ease in prices, however, has not benefited India because of the rupee’s decline. Below is an edited transcript of her interview with Reema Tendulkar and Ekta Batra. Also watch the accompanying video. Q: There is so much playing out in the commodity space, specifically with crude. Do you anticipate lower levels for Brent from here? A: I think that Brent prices could remain steady, but yes, I think there is room for the prices to slip just a little bit. The euro zone crisis has been the focus and that has put pressure on the Brent prices. Also, the market is seeing that supply is a lot more now compared to what we saw in the first quarter. Many countries led by US, China and even Saudi Arabia have built stocks, so this has all reduced the concerns of supply tightness. I think that there is probably more room for Brent to slip a little bit rather than surge in the very short term. Q: Are crude prices now factoring in any geopolitical tension or is it just a fundamental price that we are seeing on it? A: At this point, it probably still reflects the fundamentals more than the geopolitical concerns. I think that going into June, probably going into July, the Iran factor will again come up to the fore. Oil prices will depend very significantly on how effective the US and EU sanctions are on Iran and whether those sanctions will force Iran to reduce its output and its exports, which could tighten the fundamentals. But right now, if we are talking about in the next one month or so, the market is looking more at the demand supply. The demand is a bit of concern because of Greece, because of the euro zone crisis and because China’s slower economic growth. Q: If Iran is forced to reduce its crude output, if we continue to see problems emanating out of China, what kind of scale down do you see for the rest of the year? What would the end of 2102 look like in terms of a price on Brent and Nymex? A: If the sanctions on Iran are ineffective, and the volumes that the EU is cutting will be absorbed by other countries in Asia-Pacific, then there will be an over supplied market because OPEC and Saudi Arabia are pumping quite a lot. That possibly could bring prices down to USD 100 or below USD 100 by the end of this year. I think that if the Iran sanctions are effective and the market is able to absorb all this extra supply that is coming out from OPEC, maybe we could see prices strengthen a bit more from where we are. But it will be very hard to predict where its going to go in the second half of the year. I may think a few more dollars or atleast even towards the USD 110 per barrel, but again this is very premature. Q: What sort of sustainable average do you think we are working with on Brent crude as well as Nymex? A: I think that for now it looks as if the producers are keen on the USD 100 level for Brent. If there is no disruption in supplies, that seems to be a more workable level for both consumers and the producers, so I guess slightly over USD 100. It will be very hard for Brent crude to fall significantly below USD 100 and be sustainable at that level because it would halt a lot of marginal fields. So I think it would be about slightly above a USD 100, which is roughly where the market is comfortable for Brent.