According to Edward Morse, the Global Head of Commodities Research at Citigroup, the bad news for the oil market is far from over.
Oil prices, which have declined from a peak of about USD 120 per barrel since last year, today inched closer to USD 35 a barrel, indicating a picture of complete rout. But according to Edward Morse, the Global Head of Commodities Research at Citigroup, the bad news for the market is far from over.
"There is further bearish news left for crude. The bottom is not yet in for this market," Morse, who has long maintained he expects oil to go below USD 30, told CNBC-TV18. "The first quarter of the calendar year will be worse than the current quarter."
Morse said the oil market suffers from an oversupply problem and that he expects companies to reduce inventory in the first quarter.
He wasn't as bearish on metals, where supply hasn't ballooned like it has in oil, and he said a bounceback in metals was a greater possibility than in crude.
Below is the verbatim transcript of Edward Morse's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: There was a near capitulating fall that we saw in crude prices both Brent and Nymex on Friday. Does it indicate that it will at least find a bottom now albeit temporary?
A: I do not know whether we will find a bottom now or whether we will wait. I think the bearish move is not over. The next quarter will bring significantly more bearish news for the market particularly as Iran gears up to increase its exports. I think we have little bit more pain to go before the market reverses itself and starts moving up again.
Latha: So the first half of 2016 calendar, you wouldn't be surprised if the average crude price was lower than what has been the second half of 2015?
A: I wouldn't be surprised if in Q1 of next year, it is going to be lower than Q4. I think it is a tough call to say what is going to happen for the first half of the year. There are a lot of factors like the market going into the second quarter, to the end of the second quarter and it is not clear where the bottom is but I think the bottom is not yet but when to call the bottom, is the hard thing to know.
Sonia: Fundamentally how much has changed though for crude. Is it still just a supply glut problem or is there more to it than that?
A: It is mostly a supply glut problem. There are some other things that are happening that should make the market little bit more bullish than it currently is. I think we are going to see a significant amount of industry consolidation in the first half of the year. That is why I was hedging about Q1 and Q2 reaching a bottom but we have all eyes on where supply is going to turn over and the eyes on US market more than any other market.
And that is right, it is justified, we will see a significant pullback in US production over the course of the first half of the year. We will also almost certainly see a significant amount of industry consolidation focused on the US but it won't just be consolidation within the US. I think we will see a number of non US companies also participating in acquiring US production over the course of the first half of the year and that will be read as a fairly bullish sign by the market.
For entire interview, watch accompanying video.
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .