Vandana Hari, Asia editorial director at Platts doesn’t see a reason why crude oil prices cannot fall to USD 40 per barrel. Crude oil price fell to USD 49/ barrel on Tuesday. In order for prices to not tank to that level, there has to be a supply side reason, she says.
According to her, US production this year may fall, but that won’t be enough to stem crude price fall considering at the moment there is an oversupply of 1.5-2 million barrel a day.
Below is the verbatim transcript of Vandana Hari’s interview with CNBC-TV18
Q: We are seeing Brent inching towards USD 50 a barrel. Nymex futures have already given up on that level. Is there a bottom in sight?
A: There has to be a bottom but whether it is in sight, how far it is, that has become extremely difficult to say. It seems to me like the market has given up hope on any resurgence or pickup in demand, lending any support to prices because the economic data that is coming out from across the world except for some bright spots like the US is by and large quite bleak.
So, the market has set its sights on where do we see a supply response coming from. Who is going to blink, who is going to shut in the expensive production. As far as we can see and we can tell it is certainly not yet happening in the US – the biggest country right now adding to the oversupply. We do not see any signs – yes they are reducing the producers from the shale properties, they are reducing their exploratory spending, the rigs count in the US is going down a little bit but it is too early to say whether that is going to reduce any production.
We have entered the New Year with the same story of a lot of bearishness, lot of oversupply. What is new in the recent days is the renewed or even more pessimism on any kind of uptick in demand especially from countries like China. We have seen pretty weak macro economic data coming out from there as well. Of course as we know eurozone continues to be in a lot of trouble as well.
Q: Overnight we got news of how Saudi Arabia has made the exports of its crude to Asia a little more expensive. It has not done that for Europe and America as yet. Do you think that could perhaps be the first sign of the biggest player in the OPEC nations actually blinking?
A: No. I would be very cautious in reading too much into all these moves. The Saudi’s raised their differentials through Asia for February but for the past several months before that they had been dropping them. So, they are kind of playing the balancing act. Some months they reduce more to Europe and the US and in some months they reduce more to Asia. They are trying to maintain a market share.
Whether OPEC will go back on its decision, I have been saying this quite consistently I think my personal view is that they are going to stand their ground.
Q: Do you think USD 40 a barrel is a possibility? Are we headed towards that?
A: I don’t see a reason why prices would not fall to that level. As I said earlier you really need to have a supply side response. OPEC is out of the picture as far as I can tell. Are the US producers reducing? From what I can see, they are not. US production growth this year might slowdown, they might not add a million barrel per day, but not the kind of reduction the world needs. We are looking at a oversupply of anywhere between 1.5-2 million barrels per day. So, I do not think there is a bottom yet and I would not rule out USD 40 prices.