Oil in equilibrium at $100 says energy trader
Davos, February 1, 2012
Oil prices are comfortable around $100 a barrel and are unlikely to spike much higher for long even if Iranian oil supply is disrupted, the head of energy trading house Mercuria said.
Marco Dunand, chairman of Mercuria Energy Group, told Reuters the oil market had steadied despite turbulence in the Middle East and North Africa over the last year and tension between Iran and the West over Tehran's nuclear programme.
"Despite the fact that we are encountering very uncertain times - Iran, the Mena and the tsunami - the volatility has reduced and is now lower than in 2008-09," Dunand said in an interview.
"There is a risk to the upside regarding a potential conflict in the Middle East, especially in Iran, but many people think that such a conflict will not necessarily last very long and we will eventually find equilibrium, if you look a few years down the road."
"The market is taking a view that although we have short-term issues, over time the market equilibrium should be somewhere around $100 a barrel. The Saudi statement about $100 a barrel becomes somewhat of an anchor," he said.
Ali Al-Naimi, oil minister of Saudi Arabia, the world's top oil exporter, said last month that $100 a barrel was an ideal price.
The U.S. crude oil benchmark traded just below $100 on Wednesday and has not been far from that level for months.
Prices have been supported in recent weeks by worries oil supplies from the Mideast Gulf could be disrupted as the United States and European Union have tightened sanctions on Iran.
The EU plans to ban Iranian oil imports from July and Tehran has threatened to retaliate by banning its oil sales to Europe before the EU embargo comes into force.
Dunand said European refiners were already preparing for a partial loss of Iranian crude and were looking for alternatives: "The market is slowly preparing for the scenario of a partial loss of Iranian crude.
"Part of the solution will come from the Saudis and part from other places. If Iran were to impose an embargo on Europe, all this will do is to speed the process up by a few months.
"At the moment, European refineries are more likely to try to look for long-term commitments from the Saudis or other sources. I don't see the opportunity for traders to gain market share, which is mostly in the Mediterranean market," he said.
He said Mercuria had no plans to trade Iranian oil.
Headquartered in Geneva, Switzerland, Mercuria is one of the top five energy traders with a turnover of around $75 billion, moving almost 120 million tonnes of oil, coal and gas a year.
Dunand said funding represented a serious risk for the commodities industry as major banks were reducing exposure.
"If you asked me two to three years ago if there would be a risk of a European banking crisis, I would not have put it in my 10 biggest risks," he said.
"What we have noticed in the past months is that while European banks have reduced their activity in commodity trade finance, numerous banks from Asia and the Middle East are entering the arena, which is a reflection of Asian growth versus the European economy," Dunand said.
A long-term challenge for the commodities market would be to accommodate increased flows without creating a bubble, he said.
With around $600 billion invested in commodities, this asset class is relatively small compared to the many trillions of dollars invested in bonds or shares globally.
"If a money manager, a hedge fund or an index fund increases its allocation from let's say 0.5 percent to 1.5 percent, given the present size of the market, it would not be able to cope. The market will simply run out of sellers."
"The solution to this is more people entering the upstream.
They are already bypassing the financial part, and are going directly into upstream assets. I've seen Barcap (Barclays Capital) and Goldman Sachs setting up vehicles for people to invest in upstream production."
Separately, Dunand said Mercuria had signed a deal with Rosneft to buy 5 million tonnes of crude in 2012 for Mercuria's customers in Poland. He gave no further details. – Reuters