...

Oil prices: reality to outweigh perception

Oil&Gas Materials 21 April 2015 08:13 (UTC +04:00)
The ultimate level for oil price will be around the $50 to $70 range, Sam Barden, director of Wimpole International, an energy market development company believes.
Oil prices: reality to outweigh perception

Baku, Azerbaijan, April 20

By Aygun Badalova - Trend:

The ultimate level for oil price will be around the $50 to $70 range, Sam Barden, director of Wimpole International, an energy market development company believes.

"In the short term, we are seeing volatility driven by financial speculation, and we are yet to test the downside for oil from the trading perspective," Barden told Trend on April 20.

This downside, according to the expert, could be levels as low as $25, as traders sell their current longs, which he thinks will happen soon, and go short ahead of a nuclear agreement with Iran and the P5+1 by the end of June, and the beginning of the lifting of sanctions against Iran's oil.

"The world's oil majors are eyeing Iran's and Iraq's oil fields, which represent the last of the easy oil extraction in the world. So the perception trade from speculators will be that the market will be oversupplied with cheap oil, and the price will drop to as low as $25, before finding a level around $50," Barden said.

Barden believes that the current oil prices dynamic is simple, which can be described as "reality versus perception."

"The reality is that the physical oil market has huge levels of oil in storage and continues to be oversupplied, and producing members are now fighting each other for market share, which keeps downward pressure on the market price, as it is physically over supplied," expert said.

"The perception is in the financial market, and speculators who trade non-deliverable contracts, or contracts for difference (CFD) and are betting that there will be some sort of future event that will push the market higher," he added.

Barden explained that this could be the Yemen conflict escalating and cutting supply routes through the Hormuz strait, or the world economy suddenly having a miraculous recovery and sharply increasing demand for oil, or it could just be that speculators built long positions when oil was around the $50 level, and they have not taken profits yet.

"Either way, eventually reality will outweigh perception," Barden said.

With regard to the impact of U.S. oil production on oil prices, Barden stressed that US oil and shale production has put a ceiling on the oil prices.

"The US has now become the swing producer at the top end of the market. If oil goes through $100, expensive US oil and shale production again becomes viable and they produce, effectively capping oil prices for oil exporters," Barden said.

The biggest news in the energy market over the last month has been the rebound in oil prices, which came despite the announcement of a preliminary nuke deal between Iran and the West. Tehran and P5+1 (the US, UK, France, Russia, China, and Germany) reached a political framework for the ongoing nuclear talks on April 2.

Oil prices initially fell by around 5 percent on the announcement but have since recovered all of their losses.

Prices were volatile in March as fighting in Yemen escalated causing prices to rise and details of a deal between Iran and the West were released, which then caused prices to drop sharply. However, they quickly rose again as it became apparent that Iran would be unable to export oil until 2016 at the earliest, analysts of the British economic research and consulting company Capital Economics said in a report obtained by Trend earlier.

Currently prices are being traded at the level around $60 per barrel compared to the level of more than $100 per barrel in 2011-2013.

Capital Economics' analysts forecast Brent prices at $60 per barrel in 2015 and $65 per barrel in 2016. WTI price is forecasted at $55 per barrel in 2015 and $65 per barrel in 2016.

---

Follow the author on Twitter: @AygunBadalova

Tags:
Latest

Latest