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Rediff News  All News  » Business » Crude prices may drop further

Crude prices may drop further

September 11, 2006 15:29 IST

The members of the Organisation of Petroleum Exporting Countries (OPEC) are meeting at Vienna on Monday. Jason Feer of Argus Media thinks that the fear as to how far the oil prices could drop would be uppermost on the minds of the ministers meeting in Vienna.

Feer thinks that given the fundamentals, which are looking weak, crude prices are likely to soften further.

Excerpts from CNBC-TV18's exclusive interview with Jason Feer:

OPEC ministers are meeting in Vienna today, the question utmost to their minds is not how far oil prices will rise, but how far they may drop. How far do you think they will drop?

That is the big concern for the ministers at the OPEC meeting today. It has become fairly obvious that there is quite an abundant crude supply in the markets right now. I think with some of the political tension diminishing a bit, at least temporarily, with the situation in Iran, we could see prices soften even further.

I think it's very difficult to put a number on that because it really depends on political developments and sentiment. But I agree that the fundamentals look fairly weak at this point.

Could that scare ministers to actually quote supply cuts?

I think what you will certainly see behind the scenes is some concern from a lot of the producers. To be honest, we already see signs that they probably are reigning in production a bit, particularly the Saudis.

It's at this point that they are not able to sell every barrel they have been producing. So I think we will see some of the producers begin to ease back

just a bit.

Can someone trading crude take a reasonable call for the next few months and start unwinding their long positions?

I think a lot depends on what happens on the political side. With the news coming out of Iran that they seem to be willing to negotiate, I think that would probably justify prices coming down a bit. But of course the whole situation that we are seeing is two steps backward and two steps forward.

So I think it's probably going to be a gamble to start and pick a direction of the market either way at this point. As I said, the basic fundamentals are looking quite weak; there's abundant supply, but demand hasn't been growing as fast as it had in the past couple of years. So that will sort of argue in favour of a lower price.

What is more likely -- 55 or 80?

As I said, so much depends on politics; I could see prices sort of declining further if everything is the same on the political side. But the problem with oil is that so much of it comes from volatile parts of the world. So you can never really bank on political behaviour being what you expect it to be.

So are you convinced that the trend is certainly down?

As I said, if you are looking clearly at the fundamentals of the market, there is a lot of crude available. Another thing is that a lot of the refining bottlenecks have been cleared. So I would say that purely on the fundamental basis, you would be looking at softer prices.

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