Watch the interview of Amrita Sen Chief Oil Analyst Energy Aspect with Nayantara Rai on CNBC-TV18, in which she shared her reading and outlook on crude oil market.
Accroding to Amrita Sen Chief Oil Analyst Energy Aspect WTI crude could even go to the levels of USD 30 per barrel due to over production and over supply, which could put further pressure on Brent too. However she expects prices to recover by the year-end or early 2017.
Below is the verbatim transcript of the interview.
Q: It did look at one point like the WTI Nymex is going to breach USD 40, that is ofcourse the Futures that I am talking about. Some gains we have seen after that, what is your outlook for prices at the moment?
A: We think there is significant downward pressure still on prices primarily because inventories continue to build. Globally we are about 80-85 percent full on inventories simply because producers have constantly pumped oil to offset the low prices and inevitably that leads to over production and over supply. So, we wouldn’t rule out WTI going down to USD 30s.
More importantly I would put it differently, I would say we need to go into the USD 30s and stay there for little bit of time in order to ensure that the US producers that have continued to pump throughout H1 2015 actually stop doing that because otherwise the oversupply would continue to persists.
Q: So, you are holding the US accountable for continuing to cause that glut in the market. What about OPEC, we have not seen any commentary out of the OPEC that they are going to reduce supplies?
A: It is not saying that US alone is contributing to the oversupply. If anything US production is starting to come off. OPEC production in fact continues to rise. However US is still much more a high cost producer than OPEC is. Saudi Arabia can produce oil at less than USD 10 per barrel . Even though cash costs have come down in the US you are still talking about USD 50-70 per barrel to breakeven. So, there is a big discrepancy.
At the end of the day it is the high cost producers that need to balance and that is why you need prices to go down and stay low below their cash costs for a sustained period of time before you actually see a supply reaction.
Q: When you say USD 30 level are you only talking about WTI Nymex or also about the Brent?
A: We are talking about WTI over here. There is downside pressure, downside risk to Brent over here as well but not as much as WTI because again there is a big refinery turnaround season coming up in the US when you see reduced crude demand. So, that can also put more pressure on WTI.
All said both groups are likely to be under some pressure. We do expect prices to recover quite sharply at the end of 2016 and early 2017. We think crude prices can go back into USD 90 per barrel because the supply side a lot of damage is being done today. It is just that it takes a lot of time for it to show up.
In the very short term thing that can change quickly is the US shale production side of things because they are much more nimble, they are quicker in terms of cutting production or raising production compared to an oil major and that is why I stressed on the fact that prices need to stay lower in the US in order to make sure that the US production starts coming off.
Q: When you are talking about prices going back into the USD 90s in 2017, are you also perhaps reading it to coincide with the Chinese economy doing better at that time?
A: Part of it is to do with demand and that said demand this year has been phenomenal. Demand-growth so far is tracking over 2 million barrels per day despite a weak China. India is doing very well, other South East Asian economies are doing well. US demand numbers are very strong. So, low prices are helping. Even the Chinese gasoline demand story is pretty solid. However economic growth will only help the case for oil prices to recover. At the moment there are lots of economies that are fragile. If you took away low oil prices demand would struggle. I see 2017some of the economies doing better but most of it really is the supply side. You have seen a lot of cancellations and delays in projects and that is really when it starts to bite.
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