The recent spike in oil prices may continue to take it even higher, in the USD 60 range, in the short term, but over the medium term, oil will again fall back to the 40s or 50s, believes Amrita Sen, Chief Oil Analyst, Energy Aspects.
In an interview with CNBC-TV18, Sen said she saw strength in crude prices in the near term, even as they are expected to be volatile.
However, through to the end of the year, she says prices will tend to be soft till production adjusts to the recent slump in oil prices.
Below is the transcript of Amrita Sen’s interview with CNBC-TV18's Sonia Shenoy and Senthil Chengalvarayan.
Sonia: We have seen a rebound in crude and many analysts on our shows in the last couple of days have suggested that perhaps the worst is over as far as the crude fall is concerned. Is that the sense you are getting as well?
A: It is very hard to say whether it has bottomed or not. This has been a technical recovery, a technical rally and yes, they were very oversold so, the correction was long overdue but this is the weakest period for oil prices given that all the refineries are in maintenance and stocks are very high. I do think we are going to stay at a higher range in the short term but come March-April we could actually retreat back to the lows again. So, I wouldn’t rule that out.
Senthil: What would be leading your thinking in that direction, why do you think we will go back down again?
A: What you are seeing now is actually very good demand for crude oil which is refining margins are very good and the refineries are buying a lot of crude oil. Once they come out of maintenance and you start seeing then they have overproduced a lot of the gasoline and the diesel that we are consuming and that can start weighing on crude demand again.
Ultimately even at USD 60/barrel a lot of the world’s production isn’t profitable. So we will still have to ride higher but production always takes longer to react, so we are not expecting that reaction to come through till the last quarter of this year. In the short term yes, we kind of stabilised in the mid 50s or early 60s but we could easily pull back to the kind of early 50s or even late 40s because stock levels are so high and demand and supply take a little bit longer to react.
Q: We have seen a big spike up in crude in the last three or four days about a 15-20 percent and it is got an extremely volatile in the last couple of weeks. Do you think this volatility will continue and what could be the reason for that?
A: The volatility is absolutely here to stay because the moment OPEC said that they are not going to guarantee the downside on prices. That was the very first sign that volatility is going to be here because the markets know needs to price in how much prices need to go down for us to be cutting production from the Shale oil producers. Now you are starting to see the rig counts fall and that is why prices reacted so sharply. However there are so many stop losses that are being triggered so it is very much a technical movement that you are seeing and whenever you get stocks being triggered in it is bound to be very volatile.
Q: Can you give us a forecast on what your estimate is as far as crude oil, Brent and Nymex is concerned, say in the next six months?
A: We have got an average of USD 61 per barrel so prices are heading in the right direction for the next few months at least. That is where we are expecting it to hold but again like I said it is going to be volatile.
So it is going to go back down potentially to the low 50's because the refinery is going for maintenance and then come back up again into the mid 60's when demand improves in the third quarter. For Nymex crude would be we are expecting around USD 65-66.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
