Brent crude oil hits $50 per barrel in 2016

Mihir Kapadia, CEO of Sun Global Investments

MANAMA: The price of Brent crude oil moved above $50 per barrel on Thursday for the first time in 2016.
“I have always maintained that the oil market has been bullish since January. There is no doubt that the oil price has gone up faster than our expectation but I think we will hear a lot more talk now about prices hitting $55 or even $60 mark till the end of the year,” Mihir Kapadia, CEO at Sun Global Investments, said.

“It will be important to note that if it goes too quickly there will be auto-corrections. People often talk about oil as trading within certain ranges – An increase in crude oil to $50 per barrel can actually be quite an important psychological shift and be indicative of a more significant move to come. Bankruptcies in the sector have been bringing down production in the US, this is seen as one of the key elements to the supply glut being reversed.”

“Global oil stocks could begin falling by the end of the second quarter due to the disruptions in Canada and Nigeria. Cheaper petrol is also expected to drive demand. The US government estimates fuel demand for cars will surpass a previous record set in 2007 this year. But where exactly the market goes from here is anyone’s guess, so investors should be prepared for either eventuality. The much-anticipated rebalancing of the market may still take little more time.”

“Iran’s return to the market has seen an aggressive focus on market share. However beyond a certain limit Iran would need Western investment and expertise to increase their oil output. Plus, Iran’s oil supplies have entered at a time when the oil market is oversupplied and there are renewed economic concerns which will dictate a lesser demand in the oil demand growth. Iran has also tried to pre-empt its regional rival, Saudi Arabia, and is beginning to offer more ‘attractive’ prices. However, the pricing of Iranian oil will depend on how soon massive cuts in capital expenditure by private companies will affect the output and how rapidly Iran ramps up its sales.”

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