The rout in the oil market continues. Brent crude has slipped to USD 51 a barrel. WTI Nymex has tumbled to the USD 48 per barrel mark. This as data shows output in Russia hit a post-Soviet-era high in 2014 and exports from Iraq were the highest since 1980. Saudi Arabia has cut prices to its European buyers triggering a bout of panic selling. But over last few hours, prices have made a marginal rebound.
Amrita Sen, chief oil analyst with Energy Aspects says USD 40 a barrel is definitely a possibility. She says in these kinds of market it is difficult to call a bottom considering the last USD 20 move wasn’t justified by fundamentals.
Below is the verbatim transcript of Amrita Sen's interview with CNBC-TV18's Nayantara Rai and Shereen Bhan.
Nayantara: Is there a bottom in sight? Do you think USD 40 a barrel is possible?
A: USD 40 a barrel is definitely possible. In these kinds of market, it is extremely tricky and dangerous to a large extent to call a bottom because the last USD 20 move probably hasn’t been justified by fundamentals. It is very much panic and fear that is driving markets at the moment. So, the downside can continue for some time now.
Nayantara: So, you think USD 40 is very possible, do you think it can go below that? How much do you think they could head lower to?
A: You are really choosing just a number at the moment because these are not justified by fundamental levels. We have seen crude trade at USD 30 in 2008-2009, but like you were saying as well the macro backdrop is very different today as compared to what we have seen in the past. At the moment the market has been looking for OPEC to cut production which hasn’t happened and there are no signs that OPEC will be reducing any output and now the market is reliant on non OPEC supplies particularly high-cost producers to start shutting in production. The problem is that takes time because nobody wants to shut any existing output because it is actually more costly to do so even if you are not making money. That is why there is a huge amount of panic in the oil market today.
Shereen: You were talking about macro triggers, we are seeing supply peaking and we are seeing demand unlikely to recover anytime soon. So, given the supply demand mismatch and all the geopolitical back and forth that is going on at this point in time, would it be naïve to assume that we could perhaps see a pullback to USD 50-55 levels anytime soon?
A: Ultimately we would expect prices to get back into USD 60 per barrel even in the short term when there is over supply and when we work through that over supply prices should climb into the USD 70-80 towards the end of the year. However, the problem at the moment is that seasonally this is a low period or you are coming up to the low period for crude demand because a lot of refineries go into maintenance and that just doesn’t help when you have already built a million barrels per day of inventories across 2014. So, your starting point is already high and on top of that you are going to be building some more stocks. That is what is really causing a lot of the recent downturn in the market.
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