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By Chiranjivi Chakraborty , ECONOMICTIMES.COM | 20 Apr, 2016, 04.09PM IST Post a Comment

Crude oil may be heading towards $30 mark, but that’s not aproblem

NEW DELHI: Crude oil has managed to hang on above the crucial $40 a barrel markdespite the failure of the Doha oil producers' meet. But for how long?

Hartmut Issel, Head of Equities & Credit for A-Pac, UBS Wealth Management, expects theblack gold to retest the lows of $30 a barrel in the very short term on the back of still present supply glut in the market and the failure of the Doha talks.

"We think in the very short term we are still oversupplied by much more than 1 million barrel a day. So we could revisit the $30s again," hewarned.

"I would argue that the reason why oil still has held up a bit is because of the Kuwait situation and to a smaller degree perhaps theearthquake in Ecuador. Now, these are short-term factor s. I do not think they will take production out of the market for very long," he said.

At last check, Brent futures for one-month delivery were trading 2 per cent lower while its contemporary WTI crude was down about 2 percent, crucially holding above the $40 mark.

From its bo ttom of $27.10 hit on Ja nuar y 19, Br ent crude has ma na ged a stupendous rally of 65 per cent to above $44 mark, though it isstill far away from the highs hit in November 2014.

To a large extent, the crude rally supported the ongoing surge in equity markets worldwide just as it had contributed to their fall in the earlyweeks of the year.

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8/17/2019 Crude oil may be heading towards $30 mark, but that’s not a problem - The Economic Times

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4/20/16, 7rude oil may be heading towards $30 mark, but that’s not a problem - The Economic Times

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Hartmut Issel, however, doesn't have a very grim picture for the long term. He sees crude oil prices retracing back to the $50 mark by theend of the year when the demand picture may look rosier and US production might see a slowdown.

"Towards the end of the year, we expect crude oil to top $50 because by that time you will see more visible evidence of the US losing itsproduction. At the same time, by the end of the year due to the lower oil prices, we may see more global demand," he said.

Shivom Chakravarti, Senior Economist, Treasury, HDFC Bank, believes the oil supply glut - even if it remains at the same level - maywear off in the medium term shifting the average range for Brent higher.

"How oil price moves depends on the supply scenario. As long as there are no substantial cuts in oil production and Opec maintains itscurrent pace of production, you have an excess supply problem which means any upside is fairly limited," he said.

"Assuming that supplies will diminish over time, you could see a pickup of a higher trend in Brent crude from an average of $35-45 to $40-50," he said.

A sharper movement in oil prices will be supportive of global equity markets, especially the commodity-producing emerging markets, as aboost on oil is a boost for other commodities too, said experts.

In addition to that, a stabilising Chinese economy may calm down things in the oil market.

Increasingly, though, it seems the grip of the oil demon is loosening on the financial markets at home and abroad.

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