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Last Updated : Jun 02, 2016 01:34 PM IST | Source: CNBC-TV18

Crude prices may see small decline after OPEC meet: Fat Prophets

Lennox expects the West Texas Intermediate (WTI) prices to be at USD 45-50 per barrel and Brent at USD 50-55 per barrel levels by the end of FY16.

Crude prices are expected to a see small decline after the Organization of the Petroleum Exporting Countries (OPEC) meeting to be held today in Vienna, says David Lennox, Analyst, Fat Prophets, as no key announcements are expected from the meet.

The price decline will also be led by gradual increase in production from Canada, he said.

Lennox expects West Texas Intermediate (WTI) prices to be at USD 45-50 per barrel and Brent at USD 50-55 per barrel levels by the end of FY16.

OPEC members will be meeting today to appoint a new secretary general.

Also, West African nation Gabon, is likely to be announced as the 14th member of the organisation.

Below is the verbatim transcript of David Lennox’s interview with CNBC-TV18's Ekta Batra and Manisha Gupta.

Ekta: To start with what are you expecting. Maybe something decisive which could maybe result in a knee jerk reaction for crude prices on the upside?

A: I am afraid to say, we are not expecting to see any sort of key announcements coming out of the Organization of the Petroleum Exporting Countries (OPEC) meeting. Apart from the fact that they will appoint a new Secretary General. Otherwise we can't see at this point in time any change certainly going into this meeting there has been a lack of rhetoric on countries calling for either production cuts or freezes. So, I suspect that they have all been politically turning to who they are going to elect as Secretary General.

Manisha: So, if there is actually nothing that we get to hear from OPEC in sense of output today then how would you see a reaction coming in for the prices?

A: Certainly we would expect to see if there is no change from what we have seen from all the meetings that they have had over the last 12 months. If that is the case we would expect to see the oil price perhaps soften up a little bit and that is also adding to the fact that we will start to see Canadian Oil Sands starting to come back on-stream over the coming weeks. So, overall we think the news for the short term is probably on the downside for oil and that is why we have seen a pullback from that USD 50 level that it had been trying to break through over the last week or so.

Manisha: For longer term what is your sense coming in for prices. Once we are done with the OPEC meeting and in actual we do not see anything happening where do you see prices ranging then, how would you give a lower side risk and higher side gain?

A: Certainly, our end of year price we haven't changed it at all. We stuck to the USD 50 for West Texas by the end of this year and about USD 55 for Brent. So, you can see for the remainder of this year we are not really looking for any sustained rally in the oil price and that is primarily as I said we expect to see nothing coming out of OPEC. There will still be once we see the disruptions and especially the return of Canadian oil production into this system that we will see that surplus reappear in the market and of course we have got the big US inventory levels. Those we believe offer stiff headwinds and that is going to keep the oil price in check. On the downside we are in a very good dry season coming up and that is going to keep the demand after the next three or four months and that is going to stop the oil price from plummeting. The range, probably as you suggested between about USD 45-50 for Brent for West Texas Intermediate (WTI) and about USD 50-55 for Brent.

Ekta: How important or what would the dynamics be when it comes to Iran because in April they didn't participate and I am sure that they wouldn't want any production caps any which ways because they have just re-entered the markets. They have plans of wrapping up production as we speak. So, do you think that Iran would be possibly the key reason why there couldn't be any sort of agreement on country wise production caps?

A: Certainly when you have a look at what is happening inside OPEC you have got two key countries Saudi Arabia and Iran who unfortunately are at the opposite polls of geo-political events around the middle east and it would appear to us that those geo-political events are certainly impinging on the commercial thinking and that is why we expect to see no action. So, yes, Iran has already made it quite clear over a number of months that they will be very rapidly bringing extra oil back into the market now that the embargoes have been lifted and we were expecting about 1 million barrels, and that is what it looks like they would deliver throughout 2016. So, that is certainly going to keep a lid on the oil price as well. Whether or not the Saudis want to try and squeeze in a little more I guess we are going to just have to wait and see how OPEC plays out come tonight and also then obviously future meetings.
First Published on Jun 2, 2016 12:11 pm