Crude oil will be better in demand if economic recovery continues. However supply side is still strong. Apart from geo – political tension, currently there seems to be no fear on supply side.
In an interview with Ajeet Kumar of Zeebiz.com, Shiv Shrivastava, MD & CEO, IGuru Research shares his views on oil price trend, outlook and fundamentals.
How will recovery in US and Euro zone economy affect crude oil prices?
We have seen improvement in US economic figures in 2014, supported by the decision of new Fed Chief Janet Yellen on stimulus tapering. But funding of Obama Care programme is still a matter of concern and its effect can be seen in the coming days. We also have to keep in mind the effect of tapering on the ongoing economic recovery in 2nd quarter. The Euro zone economy is still and uncertain. Crude oil will be better in demand if economic recovery continues. However supply side is still strong. Apart from geo – political tension, currently there seems to be no fear on supply side.
Shale oil exploration is gradually getting trendier, how will it impact crude oil outlook?
Shale oil exploration will certainly result in increased production in future. Its low production cost always catalyses its effect. Thus the shift in demand towards shale oil will surely give a negative impact on crude oil outlook.
What is the current inventory position of distillate fuels in US? Is it bullish or bearish for oil price?
We have seen continuous increase in US distillate inventory. As per EIA report, this was up by 2.9 million barrels per day from last year’s output of 4.4 million barrels per day ultimately resulting in 7.3 million barrels per day. This will inversely affect the crude demand resulting in bearish trend for oil prices.
Will supply side shift fundamentals more against the price? Could you discuss about the supply side trend in the backdrop of the ongoing developments in middle-east, North Africa (especially in context of Iran, Libya)?
As Libya and Iran are major producers of crude oil, any geo-political in-stability will affect supply side but the ongoing production is normal.
Will rising US production and easing of supply constraints in the Middle East and North Africa increase the quantum of inventory?
Yes, we can expect increase in inventory build up in the near future.
US dollar is now gaining strength, supported by the undergoing economic recovery. How will it impact dollar-denominated commodity?
I don’t expect too much spike in dollar – denominated commodity due to strengthening of the green back. Moreover global demand is also not so encouraging.
Will decision of more tapering in future trigger massive sell off or fears/impacts have already been factored in?
If Fed continues more tapering, then we can observe a negative impact on market and possibility of major sell off should also be kept in mind.
What is your take on crude? What kind of range do you see forming in 2014?
Some more upside is expected in crude. Libya, Iran problems, severe cold weather condition in US may lift its demand and the price may go up to USD 120 per barrel. I expect it too be in a range of USD 80 – 120 in 2014.
Will spread between Brent and WTI be widened/narrowed in 2014 and why?
The spread between West Texas Intermediate (WTI ) and Brent crude represents the difference between two crude benchmarks, with WTI more representing the price US oil producers receive and Brent more representing the prices received internationally. The spread between WTI and Brent crude will average between USD 9-USD 7 per barrel in 2014. The main factors -- oil production from Libya-- was disrupted over much of 2013, which helped to support Brent crude prices. Also, there’s the potential for more Iranian oil to come, as the country is in negotiations with world powers to relax sanctions, with the potential result of more Iranian oil production and exports.
What range should you consider reasonable for the stability and health of international economy (both supplier and consumer)?
As per my opinion USD 80- USD 90 is a reasonable range for health & stability of international economy.
What are the major downside risks for the oil prices? Also mention the biggest upside triggers.
The Major downside risks are further slowdown in US and Euro Zone and demand concerns from China. Further geo-political tension will be the reason for upside triggers.
Will downside risks force OPEC to cut production to defend oil prices?
In my opinion, OPEC will only consider this option to cut production only if crude oil will sink below USD 80.
Also put your finger on the US weather (US summer and winter season) which finally affects fundamentals?
Severe cold weather still persists in US and across the globe which may extend for some more time. Summer seasons are expected to be normal in which average demand is expected. During summer driving season when a little spike can be seen.