Brent crude may average at $45 a barrel in Q3: Barclays

The crude oil prices on Friday fell to fresh April lows. Brend crude was trading around USD 42 per barrel and WTI crude around USD 40.88 per barrel.

Miswin Mahesh, Energy Analyst, Barclays expects Brent Crude to hover above USD 40 a barrel and not go much below that. The prices would average around USD 45 a barrel in the third quarter of the year and recover in the fourth quarter (October-December), says Mahesh.

According to him, although the demand for crude is slowing, the supply, too, is going to slow down and that will balance out the prices of crude in the fourth quarter. Last year in Q3, we were growing at 2-2.1 million barrels a day, while this year we are growing at 700,000 barrels, he adds.Below is the transcript of Miswin Mahesh’s interview to Manisha Gupta on CNBC-TV18. Q: What a decline we have seen and the last couple of days really have been difficult. We are almost nudging to that USD 40 per barrel mark and do you see further declines? A: Yes, we see prices hovering above USD 40 per barrel. We do not see it gong much below the USD 40 per barrel mark. We have been calling for a weakness in crude prices for Q3 and some of the fears that we had in the market with regard to the bearish price have actually materialised. With that said, I would still say going into Q4 the October to December period we do see a constructive market for crude, so we do see prices that are recovering to USD 50 per barrel. But in Q3 we see it averaging at USD 45 per barrel. Q: Do you see a USD 40 per barrel breaching? There have been some brokerages banks come out with a view that we can see the prices decline all the way to USD 37 per barrel. Even mid-30’s is not ruled out. How much would you agree with that? A: It is very much momentum based analysis that you see around typically when prices made a move to the upside or the downside and you see outlandish calls on either side of it. To be fair, I must say it is not a market as weak as it was in Q2 or Q1 this year when we saw that price fall. The essential problem here is demand. Demand has started slowing down. Last year, in Q3 we were growing at 2-2.1 million barrels a day globally and this year, growing at 7,00,000 barrels a day so one third the rate. The supplies side has slowed down, US especially. The numbers that we are seeing despite the rig counting season, it has slowed down quite a bit. Here in Europe as well you look at the North sea numbers from far out places such as Brazil, even everywhere there have been decline rates and we will start to see Q4 be a period where even though demand is slowing down, supply slows down a lot faster and that helps to balance markets. Q: So what is your sense? The mismatch or the balance that is still not on when it comes to supply and demand. When you see that striking because yet again, the other reports from city or from Goldman Sachs believe that it is going to be mid-2017 by the time we see that. A: No, we think it will be much earlier than that. From the first quarter of next year itself, you will start seeing the early signs of stock again. And I would just point to two key segments. One is and taking a boxing analogy is that it is a one-two punch that prices have delivered to the supply side both current supply as well as future supply have been impacted and that is an undeniable fact and you will start to see an impact of that come through more evident in Q1. The second fact is that again, people had expected Iran to deliver its barrels over the course of 12-18 months and they have actually delivered it over the first six months of the year. The implication of that is that Iranian barrels from now on will be very little. So, in a market where Saudi is already producing quite a lot of crude, most of the middle-eastern producers are stretching and I will also highlight Venezuela is a huge risk to the supply side. It is a market that is very constructive beyond this weak Q3 period.