Crude oil rally is losing steam: Vandana Hari, Platts

In an interview with ET Now, Vandana Hari, Asia Editorial Director, Platts, shares her views on the impact of the Egypt unrest on crude. Excerpts:


ET Now: Crude prices are at a 14-month high and that is largely due to Egypt. But Egypt, interestingly, is not a big producer or big consumer of crude.

Vandana Hari: It is multi-month high right now for crude, but equally you will also notice most of the rally in crude in the first half of this week. And Brent at around $105 a barrel and WTI just over 101 were slightly lower in the Asian morning trading, slightly lower to sideways.

So, the rally that we have seen in the recent days seems to be losing steam. It is losing steam mainly because of the overnight development in Egypt. Overall the market is taking some breather as a result of the events and perhaps now we are hoping that things will come down a little bit in Egypt.

ET Now: We have also been observing the premium between Brent and Nymex narrowing in the past few months. Why is this happening?

Vandana Hari: What has happened in the US has resulted in a far bigger rally in WTI prices in recent days. That is not really the Egypt situation, but the US stocks data, which is released on a weekly basis, earlier this week surprised the market when it showed that US crude stocks had declined by 9 to 10 million barrels week on week, which is a huge draw down on stocks and it was much above analyst expectations.

Equally, there was also a draw down in gasoline. So that put huge upward pressure on WTI, but equally Brent is a little bit weak right now and has been relative to WTI because Brent reacts more to demand from Europe and in Europe the economic situation is not good. Year on year their oil demand is going down as well. So it does not lend as much support to Brent prices.

WTI-Brent spread has crashed to about $4, but interestingly going forward the market expects this to widen again because the US is awash with crude, it is producing surplus amounts of light sweet crude. As the US refiners shift back to using more power and heavy crude their consumption of WTI kind of crude will go down. So the expectation for this spread is to go back to $6 to $8 range in the near future.

ET Now: Egypt will soon have a new leader and eventually the political problems in Egypt will fade away. So once the dust settles down, do you think crude could crack by about 5% to 7%?

Vandana Hari: Yes, everything else being equal, by and large crude prices going forward, just as we have seen in recent months, will continue responding mostly to economic data. So seeing the major economic headlines from Europe which are now predictable, and headlines from the US which have been slightly positive, the economy seems to be getting back on track.

Also the markets have of late been taking a very close look at what is happening to Asia, especially China, and zeroing in on a lot of signals that are pointing to quite tepid or mild economic growth and oil demand growth in China. So that is what the market will be focusing on.

There are slash points in the Middle East which will remain. Overwhelmingly the picture is that the market is over supplied, OECD the stocks in the commercial oil stocks in the developed countries are more than enough, OPEC has plenty of fair capacity now, even though Iran supplies have gone down dramatically. Overall, the global demand is not too good, the picture is not too good and supplies are enough. So, Brent should probably find levels around $100 a barrel.