Oil Price Should Halve if Based Only on Fundamentals

Oil would only fetch half of its current $70-a-barrel price tag if investors focused just on market fundamentals, but betting against further rises in the commodity is a risky business, Johannes Benigni, managing director at JBC Energy told CNBC Tuesday.

"The economic outlook is not yet supporting oil prices; at least the reality is the demand is not great. So the fundamentals would tell you the price could be half of what it is,” Benigni said.

However, “the medium-term outlook is quite delicate,” because once economic recovery returns, demand may jump sharply and then the existing oil reserves would come under pressure, he said.

“So there is a certain degree of nervousness and the expectation is rather for higher prices than lower prices,” he said.

Even though fundamentals such as underlying demand aren’t pointing to higher prices to come, Benigni warned investors that betting against a rise would be risky strategy.

“At best you’ll see oscillating prices around $70 until the end of the year … in two years from now, most people would say oil prices are well above $100,” he said.

- Watch the full interview with Johannes Benigni above.

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