© Abhishek Deshpande
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Yes, to a certain extent that is true as Syria as a country does not directly impact oil flows and hence would unlikely affect oil prices unless the unrests spread to other oil producing countries in the region. Also, things have change very swiftly and significantly in last few days. What had been considered an imminent attack by US and French forces on Syria's chemical weapons cache appears to have been averted. Russia capitalized on an apparently off-the-cuff remark by US Secretary of State, John Kerry, paving the way for discussions over the surrender of Syrian chemical weapons to international control. A diplomatic solution is nevertheless far from certain, and Obama has reasserted his arguments in favor of a potential military strike even as support in Congress for such an act is patently lacking. However, with less aggressive stand from the west, risk premium to oil has reduced by $2-4/bbl. in recent days.
On-going conflicts in major oil producing countries, like Libya, Iraq have caused large oil supply disruptions. For this reason, Saudi Arabia is willing to pump more oil to keep price increases under control and contain any spill-over effect to the global economy. Do you expect that they would be able to do so if it was needed?
Saudi Arabia has oil production capacity of up to 12.5mn b/d and produced 9.96mn b/d of crude oil in August, according to the latest OPEC reports. With Libyan oil production down to 100,000b/d in the first week of September, Saudi Arabia is likely to have ramped up production above 10mnb/d around that time. Also, Saudi Oil Minister has reassured that OPEC's largest oil producer will be able to supply whatever volume of crude is needed to meet demand. Unless we see a significant drop in Iraqi and Libyan oil output at the same time, we do not see Saudi Arabia producing more than 10mn b/d. At the same time, Saudi Arabia and its GCC allies have so far successfully managed to fill the deficit created in the supply because of sanction on Iran and fluctuations in output from Iraq, Libya and Nigeria. Today, Saudi Arabia is far more proactive in increasing its oil output in times of crisis in order to prevent any spare oil released by IEA.
Where do you think oil prices are heading now? If the Fed starts to taper QE later this month, how do you see commodities, in particular, oil to respond to it?
We expect oil prices to average $107.5/bbl. in 2013 and slightly higher at $108/bbl. in 2014. With global economy recovering, we have revised our demand forecast for oil for the rest of this year and for 2014, along with IEA and OPEC. On the supply side, even though oil markets appear to be well supplied, we still expect some risk premium to remain in oil prices due to on-going political unrests in the EMEA region. Hence, oil prices are likely to be supported for the rest of this year and at least the half of next year.