See Brent in $60- 65 range, could slide towards $50 without a US-China deal: Vandana Hari
Growth in oil demand to start decreasing between 2030 and 2040 and after that, we would see a decline.
How do you think oil investors will react to the Saudi Aramco IPO? Is it a big development as far as oil markets go?
I would call this IPO light. It was meant to be a 5% divestment of the company. Now a mere 1.5% divestment is happening. MDS Mohammad bin Salman the Crown Prince had expected the $2 trillion valuation and a 5% stake sale would have got him about $100 billion. Now based on the indicative share price that they have given on Sunday, it looks like they will probably raise around $24- 25 billion, one-fourth of what had been targeted earlier.
Nonetheless, the oil market clearly is going to be very keenly focussed on this going up to the IPO. Afterwards I suppose the attention will shift to how the share prices performance is once they are listed on the domestic Tadawul stock exchange. That we will get to see that next month.
What is your view on the entire crude space? How are you assessing the demand scenario and at what levels do you see crude close by the end of 2019?
Brent is trading at just above $63. Both Brent and WTI crude are sitting at about eight week highs and we have seen since October 11 a very steady gain. Cautious but steady gains in crude prices. Basically they are factoring in the optimism that the US and China will sign sooner rather than later a limited deal and the removal of tariffs is expected to be a part of that deal. That is very crucial for the oil market because if there is no rollback of tariff, then you can forget about the economic headwinds that they expect.
As of now, when you compare 2020 with 2019, most forecasters are expecting a little better oil demand growth in 2020 which this year is expected to come in below one million barrels per day. Next year, it could be 1.2 to 1.3 million barrels per day. That again is predicated on the US and China resolving their trade conflict and we will have to see some sort of recovery happening in the manufacturing sector, especially globally which has been in contraction. That is the key for the oil market.
Where do you see the long-term price of crude or Brent oil? Next one to two years, do you expect prices to largely remain flat as global growth is slow and demand could be lower?
It is extremely difficult to try and put a band around crude prices even for the next six months, let alone two years. But I will do my best. I do see a cap at $70. I do not expect Brent to sustainably reach that level or above that because at that level you are looking at WTI around $65. It is about $5 below Brent. That to my mind, will be a shot in the arm for the US shale sector which has been struggling a fair bit this year. So, that essentially means even more oil would be put in the market than what is already happening as a result of US growth.
On the downside, we have seen $60 form a good floor for Brent in the past few weeks. Could it go towards $55, $50 again? I do not think so. If there is no deal between the US and China, at that point OPEC and non-OPEC might step in if they see a danger of Brent sliding towards $50. They will make their production cuts even deeper but $50 to $70 range seems like it. If you want to tighten it a bit further within that, it looks more like $60- 65 as far as I can see.
Let us talk about the most recent IEA demand report which actually said that demand has more than doubled and IEA expected it to continue increasing. Do you concur with that view over the longer term? Do you see demand going up?
No, and as you were just outlining in the show before we started talking, the oil and the refining industry is very much focussed on what is the expectation 10-15-20 years out and those have been shaken quite a bit. There is no longer the expectation of a continued linear growth in oil demand as the world’s population grows and urbanisation grows because huge change is happening in mobility.
We see targets for electric vehicles being introduced in the country, especially the high demand growth countries like China, India. We see a lot of emphasis on oil efficiency, how to reduce the inefficient use of production of oil, transportation of oil and use of oil. All these are expected to start curbing demand. Most consensus estimates are looking at an overall global oil demand starting to plateau. Growth will start decreasing sometime between 2030 and 2040 and after that I suppose we will see a decline.