Volatility in oil prices predicted to end in Q2

Abu Dhabi: The oil prices will continue to remain lower at least till the end of the Q2, an analyst predicted as global oil prices plummet due to oversupply concerns and weak demand.

On Tuesday, Brent, the international benchmark for crude fell by almost $1 per barrel after Iranian officials visited China to push for more sales and discuss Chinese oil and gas investments in Iran, Reuters reported.

Brent was trading around $57.49, down 1.08 per cent on Tuesday at 6pm UAE time.

China is Iran’s largest trade partner and oil client, having bought roughly half of Iran’s total crude exports since 2012, when sanctions against Iran were tightened.

Amir Hossein Zamaninia, Iran’s deputy oil minister for commerce and international affairs said he and his colleagues would discuss China’s oil and gas projects in Iran, while officials from state-run National Iranian Oil Company (Nioc) will meet with China’s biggest crude buyers.

“It depends first on the willingness of the Chinese for buying Iranian crude, then everything goes through commercial negotiations,” said Mohsen Ghamsari, National Iranian Oil Company’s (NIOC) director of international affairs, of any increase in China’s purchases.

Iran was China’s sixth-largest crude oil supplier last year, behind Saudi Arabia, Angola and others, with sales up 28 per cent from 2013 to 27.46 million tonnes, or about 550,000 barrels per day, according to Chinese customs data.

A new condensate deal between Zhuhai Zhenrong and Nioc is set to lift China’s total crude oil contract volumes to above 600,000 barrels per day from later this year.

Iran agreed for a framework deal with six major world powers last week over the lifting of economic sanctions related to its controversial nuclear programme.

Oil prices went down by more than five per cent after the announcement of the agreement on Thursday night. They recovered since then over uncertainty pertaining to Iran’s capacity to increase production once sanctions are eased.

Daniel Ang, an investment analyst from Singapore-based Phillip Futures, said the end of lower oil prices should come by the end of the second quarter.

“Historically, we have not seen crude oil prices drop and stay low for a length of more than a year. Since the end of Q2 would be the anniversary of this saga of lower crude oil prices, we believe the reversal should come soon. “

However, the increase in prices would not be as sharp as its drop, he said.

“We expect to see gradual increases in oil prices and this should come from drop in US crude oil production. We have seen a drop in production from the US last week and if this drop in US production continues, this could be the start of higher oil prices.”

He did not say how much the oil prices are likely to go up but said there will be high levels of volatility during crude oil’s consolidation phase.

“In the 2008 financial crisis, crude oil fluctuated in a wide range of $20. So, comparing current volatility to past examples, the current situation does not amount to much. Stability to oil prices should come when we see the uptrend.”

Oil prices have been fluctuating for the past few months. In January, the prices fell to less $50, the lowest since oil prices started plunging from June last year. They remained between $50 and $60 in the last two months.

The recent Iran talks put further pressure on oil prices, which fell by more than five per cent after Iran agreed to a framework deal with six major world powers.

Oil markets were also pressured by a Goldman Sachs report which said that prices needed to remain low for months to slow US oil output growth.