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Last Updated : Oct 07, 2016 10:40 AM IST | Source: CNBC-TV18

A rise in crude unlikely this year; see volatility: Fat Prophets

Speaking to CNBC-TV18 David Lennox of Fat Prophets said that he doesn‘t see much of an upside in crude prices for either Brent or WTI. He hasn't changed his view on prices for Brent which stands at USD 55 and USD 50 for WTI.

Speaking to CNBC-TV18 David Lennox of Fat Prophets said that he doesn’t see much of an upside in crude prices for either Brent or WTI. He hasn't changed his view on prices for Brent which stands at USD 55 and USD 50 for WTI.

“We aren’t looking for a rise this year,” he said.

Brent crude is nudging up to USD 52 a barrel and is hovering near a peak not seen since the beginning of June.

Lennox expects to see more volatility. OPEC has a history of saying one thing and doing the opposite, he said, referring to its promise of cutting crude supplies. 

There has been shutting of production in the US, he said.

Below is the verbatim transcript of David Lennox's interview to Latha Venkatesh and Manisha Gupta on CNBC-TV18.

Latha: There are no crude bulls in India or very few of them, it hurts our current account, it hurts our fiscal deficit but tell us how much should we worry? How high can crude get in the next one month?

A: At this point of time, we haven’t changed our end of year price for brent and for WTI. Brent may still see USD 55 per barrel. I can see that there is only a small amount of upside left we believe in the brent prices and for the WTI, we had kept it at USD 50 per barrel. On WTI, we are not looking for any rise over the rest of this year.

So from your country's point of view, we think that perhaps we have seen the best of the rise given the news that we have seen coming out of Organization of the Petroleum Exporting Countries (OPEC) in terms of potential production cuts down to 32.50 million barrels given the strong data that we are seeing coming out of the US and of course that strong demand we are seeing for gasoline.

Manisha: 15 percent of a jump up in seven days and we haven’t seen any output cut yet and that would only happen by November 30. So given the time until then would you expect more volatility in prices and would you also see a risk of this deal not happening after all?

A: The real big risk is yes, OPEC of course has a very long history of saying things and unfortunately doing the opposite. So the markets will be watching very closely to see when the first lot of production number start to come in post the announcement then in fact, OPEC is heading for that 32.50 million barrels ceiling that they had suggested. It was only a several years ago that they had suggested that 30 million ceiling so that didn’t stand place very long. So it is going to be wait and see. Yes, volatility is going to stay in the market. Any good news, we have seen those rallies but there are headwinds as you have suggested already.

Manisha: What is your sense? Where would we see this year ending now because the oversupplies are still on? We are looking at all time high output from Russia and most of the OPEC producers as well and the cut -- if that comes -- would only be on November 30 and if the cut comes, the start of cut would only happen by 2017. So would you say that the next three months perhaps the oversupply situation would continue and how are you pricing that into the market?

A: We would certainly suggest that there still is an oversupply in the crude market. We think at the moment, between half and a million barrels, it has closed insignificantly from 2.5 million barrels that it hit just towards the end of last year and early this year. So there has been a shut in the production from merely out of the US which is now down to 8.4 million barrels of production.

We certainly think that with the US looking very closely or certainly US companies watching very closely this rise in the oil price that if we see some consistency then downward trend in US production would probably reverse and perhaps just start to go higher. That has been going to add to the surplus. We need to see a bigger cut than the 700,000 barrels that OPEC have suggested before we see any sustained rally in the oil price over the reminder of this year.

First Published on Oct 7, 2016 08:56 am