Do not expect a major slump in oil prices anytime soon: Vandana Hari

There was a crucial meeting on Sunday after which we saw oil prices being very choppy especially the futures. This is of course something we watch out for very closely as when the crude oil prices go up it is bad news for India. So what should we expect for the oil prices in December, would it stay comfortably below 90 if not below 80?

So this morning we saw prices jumping up and the main factor behind it was China pivoting away from a strict zero COVID policy.

We had reports over the weekend that more and more Chinese cities are relaxing the testing requirements for people to enter public places. They are starting to close down the testing centres and the government is starting to ease the norms now.

That is a big deal for the oil markets because we are looking at the second largest oil consumer in the world. 15% of global oil demand is accounted for by China so as we see the gradual relaxation of COVID curbs in China which by no means is going to be smooth but as it happens you would expect oil prices to go a little bit into bullish mode on expectations of improving Chinese demand.

On the surface of what OPEC plus did on Sunday was that it held steady its production targets but another aspect of the same decision was that the 2 million barrels per day target cut that they had agreed in October for November and December now has been rolled forward for the next six months which is also a slightly bullish indicator.

Yes, the global economic downturn is going to put a downward pressure on oil prices but I would not expect too much of a downward pressure so I do not expect a major slump in prices anytime soon.

Not a major slump in prices but experts seem to indicate that the oil market for the year 2023 could look quite different. There is potentially historic shifts that we could see in supply and demand as well that could unfold in the coming days and weeks which is going to have a bearing on the oil prices?

It is definitely going to look very different and I think that is one thing that you can say with certainty. This year the theme was strict COVID controls, lockdown, semi-lockdowns in China. Chinese oil demand is slated to be lower year on year for the first time since 1990 perhaps by 400,000 to 500,000 barrels per day so that will look very different.

Russian crude was continuing to flow into the European countries G7 countries for the most part of this year which is going to look very different because they are ending all sea borne imports of Russian crude.

But right now if you look at the balance of factors, the bullish and bearish factors on crude roughly look balanced to me at current levels which is why I do not see a major factor right now on the horizon that might send prices substantially higher or substantially lower from current levels.

I think OPEC plus will try and defend the floor may be not a $90 per barrel for Brent but perhaps at 80 so I think they will try and prevent a sustain downward spiral in oil prices.

Last week Bank of America came out with the report where they said that they see crude oil at a $110 a barrel in 2023 due to Russian crude disruption concerns. What are your views on that report?
So as far as Russian crude disruption is concerned the big factor was that what would happen if countries like China and India do not sign up for the price cap being imposed by the EU and G7 and as a result get locked out of the insurance and shipping markets. But now that is no longer a concern. It has become very clear over the past few months that insurance companies alternatives to the ones that are based in the EU of course have come up and offered to provide insurance for shipping of Russian crude to these countries.

The other was that what if Russia retaliates to the price cap idea by cutting back its output and exports. I do not see a danger of that happening either because again China and India are not expected to join the price caps so why would Russia want to curtail its revenues voluntarily.

So I think Russia is not a major bullish factor right now which is why I say the general trend is going to be a continued downward pressure from economic concerns but that typically tends to be a relatively mild and slow acting downward pressure on crude prices.