Crude oil price may fall back to $75/bbl as Saudi Arabia reopens supply: Mark Matthews

On foreign investment into India, he says that one thing that often keeps investors away from emerging markets is that they don't want to lose money in currency value.

The international crude oil prices have jumped to above $90 per barrel only due to a sudden supply cut as Saudi Arabia has reduced production. It may not sustain, and will likely fall back to $75 per barrel by the next year, as Saudi Arabia is encouraged to resume supplies due to the competition from other nations, said Mark Matthews, Head of Research, Asia for Julius Baer.

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Crude oil prices have sharply risen of late, with Brent/WTI crude oil price rising to $90 per barrel in just 3 to 4 weeks.

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The sudden increase in crude oil prices could be because of Saudi Arabia's production cuts which have been extended until the end of the year, Matthews said in an interview with Moneycontrol. This is because Saudi Arabia can anticipate a fall in demand from China and Europe, where, he says, the economies are in a ‘funk’.

However, a decline in production from Saudi Arabia would see other players make inroads. As much as 80% of the Saudi production cuts, he says, will be made up for by increased production from Russia and Iran and Venezuela as well as new supply sources like Brazil. "With these high prices other suppliers will come in and take advantage of them," Matthews said.

The high crude oil price, thus, would just be transitory. "Saudi doesn't want to do all the hard work forever by itself. Why should it be reducing its own output by a million barrels per day if all of a sudden other countries can come in and fill that void. So, ultimately we think there's lots of supply out there still and it will help to bring down the price," he said.

While China has not seen much of a slowdown when it comes to crude import numbers, Matthews does not expect this to have much impact as China has never really been the marginal driver of oil prices. "it is a driver for commodity prices but not crude oil prices."

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