Monday, Oct 12, 2015
Abu Dhabi: Heightened geopolitical tensions in Syria and a weak dollar are pushing oil prices higher, though it is unlikely they will reach $60 to $70 (Dh220.38 to Dh258) per barrel by the end of the year, analysts said.
“The US dollar index has continued to weaken [and this] is fuelling higher oil prices,” Daniel Ang, an investment analyst from Singapore based Phillip Futures told Gulf News. “In addition to this, we are seeing heightened tensions in Syria as Russia joins the fight. There are the main reasons why prices are heading upwards.”
Russia launched air strikes against Daesh (the self- proclaimed Islamic State of Iraq and the Levant) militants in Syria last week, escalating geopolitical tensions in a Middle East already plagued with wars and conflicts.
Brent, the global benchmark was priced at $52.70 per barrel, up 0.09 per cent while West Texas Intermediate (WTI) registered an increase of 0.14 per cent to $49.70 at 3.36pm UAE time.
The bullish momentum is likely to pick up by the end of the month but the entry of Iranian oil next month could put a break to it.
According to Ang, WTI and Brent could move up to $52.36 and $56.38 by the end of the month. However, he sees the trend as short-lived as Iranian oil could return in November.
“This limits the bullish momentum we would be seeing.”
Iran sealed a deal with six major world powers in July over its controversial nuclear enrichment programme, paving the way for the Islamic republic to export more oil into the world markets.
An important member of the Organisation of the Petroleum Exporting Counties (Opec), Iran has the world’s fourth-largest proven oil reserves after Saudi Arabia, Venezuela and Canada.
Despite the surge in oil prices, they are unlikely to touch $60 to $70 per barrel by the end of the year, Ang said.
“Depending on how prices end the year, we may see prices hit $60-70 at the mid of 2016.”
Oil prices plunged by more than 50 per cent since June last year due to over production from the US shale drillers and weak demand from China. Opec refused to slash oil output to prop up oil prices.
Analysts said the Opec strategy of not cutting production is working, with the global supply situation improving through declining US crude oil production.
“[The] Opec decision to protect market share and drive out shale is working because the trend of production is declining but at the same time, the market is oversupplied which should put a cap on any substantial gains,” said Akber R. Naqvi, executive director of Dubai-based Al Masah Capital Management.
He said there are 2.6 million barrels per day of excess production, a level not seen since 1998.
“As more of the high-cost production is withdrawn from the market, naturally, this excess supply will begin to taper off and signs of this have begun to show with rig counts beginning to decline,” Naqvi said.
By Fareed Rahman Senior Business Reporter
Gulf News 2015. All rights reserved.
