See Brent crude around $109/bbl in '11: FACTS Global Energy

In an interview with CNBC-TV18, Praveen Kumar, Senior Consultant, Head-South Asia Oil and Gas Team, FACTS Global Energy, gave his readings and outlook for the crude prices.

"Our forecast for this year is Brent will come to about USD 109 per barrel," he said. Below is the verbatim transcript of Kumar's interview with Anuj Singhal and Latha Venkatesh of CNBC-TV18. Also watch the accompanying video. Q: We are now at USD 123 per barrel for Brent, how much of this is because of the geopolitical worries and how much of it is purely because of the fact that there is quite a bit of liquidity which is chasing some of this risk assets, we have seen rally across equity markets as well and going forward what is the range you are looking at for Brent prices? A: You asked how much of this is actually because of geo political issues and it is mostly because of the geopolitical issues. Today, we are looking a Brent price of about USD 122-123 per barrel and then you have the WTI prices, which is about USD 110 per barrel. So, the Brent-WTI differential continues to stay about USD 13 per barrel differential. The Brent price is actually more reflective of the physical market and the WTI because of the high stocks in the Cushing area. So, to sum it up I would say, it is a comfortable stock positions if you look at company positions in the OECD, they have reasonable oil stocks. Even in the floating storages if you compare it with the last two years the storages have halved to about 50 million barrels but it is still significant. So, if you are looking at the position of stocks there is enough. It is mainly the geopolitical problems which you have in Libya, there is tension escalating in Nigeria because of the political situation, even in Gabon workers went on strike, they are back on producing but that did impact the market. It is mainly because of the geopolitical issues I would say. Overall we have had to raise our average forecast for the year. For Brent we have had to raise to USD 109 per barrel, if you look at 2011 as an average and for WTI we have kept it about USD 8 less, so around USD 108 per barrel. Q: There have been no fresh reduction in the supplies, while there have been tensions in pockets actual flow of crude from any of the Major producing countries has not been there. One instance where Libya threatened to cut supplies or supplies from Libya were expected to go lower you saw Saudi Arabia even hinting that it might replace those supplies. The point I am making is that on the ground the supply situation has not really worsened, so is it there is a lot of money available for risky assets and like we have seen copper go back from its lows all the way to near USD 10,000 mark, emerging market equities getting a lot of money, is this really risk capital that is driving up, is there really any merit in the Middle Eastern trigger for pushing up prices? A: The current way we look at the prices of crude right now, we associate a risk premium to it. So, if you look at crude quality there is the light sweet crude, which is scarce. The Libyan crude is mainly the light sweet crude and is used by refiners in Europe mainly to produce their products. The biggest zone, which is impacted by the Libyan crisis in terms of crude procurement is Europe. Saudi is producing over 9 million barrels per day of crude and Saudi has got huge reserves. If you look at Saudi production and you look at the second largest producer in the world. It would still be Saudi in terms of it's reserve production. But the problem is not so much on the crude produced; it is more about the quality of crude produced. Now the Libyan crude that is been produced is of a certain quality as compared to what crude can come out of Saudi. Now the Saudi has stepped in and said that they can try to blend the Arab Extra Light and the Arab Light and they can try to produce crude that matches the quality of the Libyan crude. But, that is not simply enough for the Europeans in terms of what they can process. The problem here and also in saying that crude production has not been impacted, it