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Last Updated : Feb 19, 2016 10:32 AM IST | Source: CNBC-TV18

WTI price may touch $50/bbl by year-end: Fat Prophets

While the news of capping crude production has been positive for the oil industry, markets are not really convinced if capping would happen any sooner, says David Lennox, Fat Prophets.

After Iran came in support of Russia and Saudi Arabia's plans to trim crude oil production at January levels, US crude futures—West Texas Intermediate (WTI)— rose almost 3 percent in early Asian trade on Thursday.

While the news is a positive for the oil industry, markets are not really convinced if capping would happen any sooner, says David Lennox, Fat Prophets.

In an interview to CNBC-TV18, Lennox says he sees crude volatility in the near-term and expects WTI to rally between USD 30-40 per barrel for the month. However, it could start falling again below USD 30 per barrel in the absence of such a price rally.

Below is the verbatim transcript of David Lennox's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: Is it time to go long on crude. Do you think a bottom is in place at least for the first half of this year?

A: One will have to suggest that at least we have seen for once some form of positive reaction out of the supply side and that is we have seen both now two big producers Saudi Arabia and Russia coming together and at least putting a freeze on production at January 2016 numbers. So, one would have to now suggest that with that in place we probably have seen at least some form of bottom in the oil price.

Sonia: What are the chances that people will not renege on this promise because the countries who are promising Russia, Iran are deeply indebted countries, have deep scarce on their economy. Do you think this pact will hold?

A: I guess that\\'s what the market is trying to look at now. When you have a look at the reaction in the oil price, one would suggest that the market is not convinced that we will see the pact hold and perhaps in some future date we will see it will unravel. I think that is primarily because we haven't seen the oil price rally strongly from its lows. It's still trading above USD 31 per bbl level. Had the market had a stronger view on that, we would have expected that perhaps you would have seen it travel into the mid to high USD 30 per bbl, but there are some headwinds that would push against that price.

Sonia: There was an unexpected drop in crude inventories in the US. It fell by almost 3.5 million bbl to close to 500 million bbl overall. What is your expectation going ahead? Was that just an aberration and both on Brent and on Nymex what are your forecast now?

A: At this point in time that was probably we think was an aberration. We are going through now the northern hemisphere winter and it would suggest that we would see that crude inventory rise and they say they are compensating reduction and import into that country or the domestic production does slow well. It was a surprise but it had very little impact on the oil price when you have a look at this year number of inventories that are still sitting over there in the US. It is a record number virtually and it will take time to work through.

At this point in time in terms of their forecast, in the near term we do expect to see volatility but we do think that both the Brent and the West Texas Intermediate (WTI) price will probably be able to rally a bit further provided we do about to see other members of Organisation of the Petroleum Exporting Countries (OPEC) joining that pact of freezing production. If that doesn't happen, it could be downside below USD 30 again. Longer term we think WTI will hit about USD 50 per bbl by close of year.
First Published on Feb 18, 2016 08:32 am