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 Emkay Wealth Management Ltd, the wealth management arm of Emkay Global Financial Services has released a press note on crude oil price movement. According to Emkay Wealth Management Brent crude will continue to trade in a broad range of 75-80/bbl. Crude prices are weak as fundamental factors do not support higher oil prices, there has not been any major attacks on the oilfields in Iran, OPEC, International Energy Agency (IEA), and the US EIA data indicate an oversupply of oil in the coming year, and lastly the demand from China for oil is weak.

Brent to trade in broad ranges

Brent is currently trading at $74 per barrel, and the range Emkay Wealth Management indicated last month was $75-80. The market traded most of the time in the lower part of the range. What instilled in the markets a certain amount of anxiety is the development around the Middle East conflict. Given the current set up brent crude will continue to trade in the same price band of $75-80/bbl.

Disruption in oil supply may impact prices

What could disrupt oil supply and therefore, adversely affect oil prices is any disruption of the traffic due to attacks by terrorists, and any potential damage to Iranian oil fields. The first factor is already there but has not been that effective as the attacks have been sporadic. As far as oil fields go there is no damage done as yet to disrupt oil supply. This has helped prices to remain range bound. Therefore, there is no premium on oil prices due to the geo-political developments as of today. It is worth mentioning here that the US sanctions on Iran as far as petroleum products are concerned is still in place and it has been tightened.  But, beyond these regional issues which are of immediate concern, the fundamental factors do not support higher oil prices.

Data indicate oversupply of crude

The estimates by OPEC, International Energy Agency (IEA), and the US EIA present a picture of oversupply of oil in the coming year. These estimates differ in the magnitude of oversupply but have a common ground in supply which is in excess of the demand growth.

Weak Chinese demand

Yet another factor is the fact that the demand from China for oil is weak. It has been more pronounce din the last three months. This is reported to be due to weak demand in the local market mainly for diesel and gasoline. Chinese refining of oil has also come down in the last three months. This may be a prelude to a significant fall in the share of Chinese demand in the global oil demand growth.

Given the multiple factors at play, any spike in oil prices may happen only if the Middle East conflict escalates and some damage is caused to oil fields in Iran.

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