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Oil prices 'will be driven by fundamentals'
By Marcus Hand in Singapore - Wednesday 22 October 2008
Lukoil International Trading and Supply Co, trading director, Erik Arentz said that the sharp spike in oil prices witnessed early this year was due to high volume speculative trading which has dropped off with the growing global financial turmoil.
“We are now likely to see the oil price driven by fundamentals now that the bubble money has gone out, and it is unlikely to come back in in a major way,” Mr Arentz told the Asia Pacific Petroleum Conference in Singapore.
In June the crude oil price hit $147 a barrel but this was seen as an anomaly with it now returning to a more natural trading pattern.
Valery Golovushkin, chief executive of the State Oil Company of Azerbaijan Republic’s trading arm, SOCAR Trading concurred that the high oil price had been driven by financial speculation. “This financial trading was all very much artificial. The speculation had been at a very high level,” he said.
“The bubble this year was a blip on the chart,” Mr Arentz said.
“We now feel more comfortable with setting a range than we did a month ago. We see that the market has returned to a natural trading market.”
Mr Arentz said that Litasco expected crue oil to trade in the $70 to $90 per barrel range.
The forecast came as crude oil slipped below $70 per barrel in Asian trading on Wednesday as fears over a US recession grew.
A correlation is also being seen between movements of the world oil prices and stock markets. Mr Arentz noted there seemed to be some common ground between movements in the Nasdaq composite index and the oil price.
Mr Golovushkin believes that the price cannot drop too much further for a sustained period due to the increased that oil producers face. He said that the breakeven point for substantial parts of the industry was $50 to $60 per barrel.
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