© Amrita Sen
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Amrita Sen
Assistant Vice-President, Commodities Research at Barclays Capital
What oil prices do expect this year?
I think for oil the fundamentals are very strong, while inventories and oil spare capacities are very low. If we look at the downside risks which are primarily concerning Greece and the EU sovereign debt that should becoming a bigger financial issue, that is receding very quickly. Whereas, on the other side the geopolitical issue is rising Iran tensions. The denying outcome is definitely looking less and less possible out of that situation.
Overall the risks to oil prices even at $123 holding by Brent, is to the upside. It is more a supply driven/geopolitical driven price rise. Then we can claim that the next stage would be high prices start cut some of the demand and then bring back demand supply back into equilibrium.
Do you regard the EU refusal to import Iranian oil as a wise decision in the long-term?
I do not think we should comment on whether it is wise decision or not. The decision to stop importing Iranian oil to the EU is similar to the US sanctions to prevent Iran from implementing nuclear policy. In the market, where spare capacities are already very low, it does mean that the buffers are very little. Obviously, the more the sanctions are tightened the more Iran will have difficulties selling its oil, even if China and India take some of it. There would be a gap which Saudi Arabia has to fill up by increasing their production.
If this was 2010, when spare capacities in the market were 5-6 million barrels per day, things would have been a lot more comfortable. It is not the same price that would have gone up, but at least the risks purely suited to the upside would have been a lot less. There were buffers, the inventories were a lot higher. We should also remember, that it is not only Iran, but also Iraq, Nigeria, and lots of other geopolitical issues are there. The risk, I mean embargo, generally in the past have never worked in the sense of increasing prices that you get, which are significantly higher than volume extended to offset, and net revenues have necessarily fallen. I think whether it is wise or not, that the way different question.
Will price increase of crude oil influence the price of gold?
There is no direct correlation between the oil price and the gold price. We do not think that oil prices drive gold prices. Gold has its own drivers including jewellery demand, and the Central Banks buying. However, it is possible to argue in terms of USD/gold correlation, inflation and gold correlation. Oil is definitely not the one that drives gold prices though. One of the benefiting factors for gold is high inflation. Lots of people do buy gold or do look at gold as inflationary hedge. You can argue about that relationship, but it is wrong to say that oil prices go up by 5 %, therefore gold price goes up by 5 %.