Brent crude oil prices have been trading around USD 60 per barrel at 27-month highs. Brent has bee up 36 percent from June lows. Meanwhile, US Crude, which was up 27 percent from June lows has been trading at USD 6 per barrel to Brent. So, India has started importing from US for the first time in 42 years.
India meets 82 percent of oil requirement from imports and fuel prices in India have been up since August. In 2016, the Brent prices were averaging at around USD46/bbl but currently it’s around USD 53/bbl.
Vandana Hari of Vanda Insights says the reasons for spike in crude prices are several. One, comments from senior leaders from Saudi Arabia which reinforced the market views that OPEC and non-OPEC cuts may continue into December.
Two, the projections for production from US may fall short of earlier projections of an increase of 1 million barrels per day. Three, geopolitical risk has been injected into the prices. All this painted a bullish picture for crude oil.
However, going forward there is no reason for further spike in prices as most of it is already priced in, says Hari.
In terms of what should one be prepared for in 2018, there are some known knowns – one is pretty much taken for granted that OPEC, non-OPEC cuts will continue and probably won’t see much tweaks. Meanwhile, Nigeria and others remain a wild card because they can offset half or more than half of what OPEC, non-OPEC has pledged to cut.
Assuming OPEC and non-OPEC cuts continuing, it will put a floor for prices but a slip back to low USD 50/bbl for Brent looks difficult. The other big variable remains US Crude.
However, if demand continues then we could rebalancing by end of 2018 and don’t see Brent climbing very far away from USD 60/bbl.