Fall in Oil Prices Won’t End Soon: Pro

Matthew Clinch, special to CNBC.com
Monday, 25 Jun 2012 | 12:12 AM ET

The increase in demand for oil from emerging countries is not enough to counteract the fall in demand from established economies, Alejandro Barbajosa, oil markets specialist at Argus Media told CNBC.

Oil prices are decisively lower than three months ago and Brent Crude fell to below $90 per barrel last Thursday, its lowest level in eighteen months.

Barbajosa told CNBC's "Worldwide Exchange" he finds it very difficult to see a move higher in the short term. He explained that oil for prompt delivery had recently discounted to a level relative to the supplies to be delivered at a later date, a market structure known as a “contango” .

“This is a result of the Saudi increase in production,” Barbajosa explained. “It took a very long time for Saudi Arabia to actually set the market into that type of structure and it’s unlikely that any reversal of decision in output would have any immediate effect in restoring the market back to the previous situation of backwardation , where there’s a premium for those prompt supplies.”

Barbajosa stopped short of warning that oil could fall back down to $30 per barrel, stressing that it was very difficult to tell what level it may reach. He said the current surplus is the largest since 1998 when OPEC increased production significantly and prices crashed to about $10 a barrel.

“That surplus is coming and filling up inventories across both developed and developing nations,” Barbajosa said “Argus now believes that any increase we’re seeing in demand from emerging markets is not enough to compensate for any decrease we’re seeing from OECD economies where demand is falling at a rate of about 950,000 barrels a day compared to last year.”

Barbajosa believes that compared to last year, growth for oil in emerging markets is about 450,000 barrels a day. He also ruled out the possibility that liquefied natural gas may be affecting the oil market, explaining that gas prices are determined by regional markets and are not directly linked to movements in the global oil market.

For another view on oil prices, read: Beware, Oil Could Tumble Even Further: Pro.


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