Crude prices expected to soften further

11 September 2006

OPEC members are meeting at Vienna today. 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. CNBC-TV18 shares with domain-b its exclusive interview with 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.