With constant tension in Iran and the Strait of Hormuz, there is a constant upward rise in the crude oil prices says Simon Wardell, senior oil analyst of IHS CERA. Though Japan and Korea have lessened their import of Iranian oil, it still weighs as a huge factor to affect the Asian growth and thus the global growth of the world in general. The tension between Iran and West though it remains in the background will not cause the oil prices to stop increasing over the next 18 months.
Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompany video. Q: How credible is this Iranian threat to block part of the Strait of Hormuz? If that happens, are we looking at a warlike situation? What then happens to crude prices in that case? A: Iran is definitely weighing on crude markets right now. We are seeing the impact coming in terms of the upward pressure on prices. The greater the tensions get, the more we get this sort of uplift in the oil markets and that is definitely playing into many of the problems in terms of pricing. Q: How can things pan out? How much upside do you see to crude prices? A: Without something more serious happening in the Gulf, I think the upside is still a little bit limited at this stage. As we do get into these high 120s and into the 130s, we potentially damage the economic growth that we are seeing. At a time when the global economy is still very fragile, there is a risk that we start to see - prices begin to damage demand and that could help to start pushing things a little lower. Q: We heard reports that some Asian countries, which are the biggest consumers of Iranian oil, having actually started cutting down on Iran imports by around 10-15%. Are these lower supplies from Iran already in the price? A: I think a lot of it is being priced in and we actually could see a lot of the Iranian oil shifting to other Asian buyers. We have seen Japan and South Korea as the main examples of countries trying to move away from Iranian oil. However, if Iran cuts the price enough, they could find potential export markets in other destinations. We might see some of that oil moving around from one place to another rather than just being completely lost from the markets. Q: We have seen that differential between Brent and WTI crude actually narrowing of-late. Where do you see them stabilizing in terms of a differential between the two? A: We are not going to see Brent and WTI closing too much. There will be occasional movement but the problems in United States are not going to be solved very quickly. We have essentially infrastructure bottlenecks, which are going to take 18-24 months at the earliest to clear. While we will see some pipeline reversals, which should ease things a little bit, there is so much oil being pumped into the mid-continent that we are going to see continued bottlenecks in the future. That means we are probably not going to see Brent and WTI gap closing substantially anytime soon. Q: Recently the EU commission lowered the growth outlook for the continent for Europe. Will it cause a fall in demand impact prices? A: Europe is actually not a big consumer of oil at least in terms of growth. In fact oil consumption in Europe has been steadily falling over the last 5-10 yrs or so. We are not expecting a huge amount of growth in oil consumption coming from Europe anyway. However, it certainly weighs on the global economy and could have repercussions for Asian growth and global growth more generally and that is probably where the risk comes from. Although, there is a very poor outlook for Europe this year in terms of its economic growth, it is actually a little bit better than people, who fear it might be a just a few months ago. Q: At what price level will demand start being pressuredDiscover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
