ET Now: Crude prices have not really fallen off the cliff despite the signs that the Libyan revolt is almost coming to an end. What is the market pricing in?
Vandana Hari: Yeah, the prices did drop yesterday when the news first emerged of what looked like the crisis could be coming to an end. Of course nobody can say it for sure. There was a dip yesterday at this time but then overnight they seem to have climbed right back up and sitting over $107 for Brent. Now what seems to have happened overnight, of course the two aspects to it. One is yes, there is a likelihood of the Libyan oil production coming back onto the market. About 1.6 millions barrel per day of light sweet crude has been removed and that could start coming back. But the other factor overnight what happened was the equity markets went up a little bit and on a slight change in sentiment over the economic prospects globally and that actually lifted crude up.
So it just goes to reinforce the view that right now the biggest single factor impacting on oil prices and presumably going forward is going to be sentiment and the actual performance of the global economic growth. Of course, the biggest fears there have been that what happens if there is a recession again in the states and in the Eurozone and what that's going to do to oil demand.
ET Now: So would you say that perhaps Nymex would fund a fundamental bottom between $80-85 to a barrel?
Vandana Hari: It is hard to. At this point bottom really does not look in sight to me and I will tell you in a moment, why? What has happened is with the Arab spring and we were talking about Libyan supplies. We were talking with the Libya's de facto oil minister, Mr. Shokri Ghanem, yesterday. He said supplies would start coming back in about three months but it will take at least a year for production to reach 1 million barrels per day, which is still short of what the country was producing. So what's happening is this Arab spring, which is still kind of dangling a sword on a lot of the major oil producing countries in North Africa and the Middle East. So that still remains a supportive factor for the market, but going forward it is the economic sentiment.
What is happening though is the crash and the bloodbath you are seeing in the equity markets, the steep plunge is not completely mirrored in crude, not yet. Oil markets almost seem to be pausing and not quite sure whether to completely track that negative sentiment that we see reflected in the equity markets. This probably because if you look at the actual oil consumption data, the IEA figures that came out earlier this month in their monthly report.
They are still expecting a 1.2 million barrel per day increase in oil production this year versus last year. So the dots have not quite been connected. If there is a significant drop in the western economies, what exactly is that going to mean for Asia and really what impact is it going to have on Asian oil demand because for now the view is that Asian oil demand is going to continue propping up, basically the oil markets.
