Home Market Without US oil supply, crude prices would have touched $90-95: David Lennox,...

Without US oil supply, crude prices would have touched $90-95: David Lennox, Fat Prophets


US production over the course of 2018 is sitting at about 13.7 million barrels of production per day, points out David Lennox, Resource Analyst, Fat Prophets, talking to ET Now.

Edited excerpts:
What is your view on oil hitting a fresh three-and-a-half year high on the possibility of Trump imposing sanctions on Iran once again? How much can that derail market sentiment globally?

The sentiment in the oil market is very, very positive. There are a couple of factors that are causing that surge that you have already mentioned. A) the potential for sanctions to be applied to Iran. B) We also saw production in Venezuela starting to drift away as that country goes through geopolitical events. We are also seeing the other side of the fence effect with significant improvement in demand being forecast coming into the summer period in the northern hemisphere.

For that reason, we have seen oil prices rally quite strongly. It did start on the premise of the OPEC group and its allies maintaining current production at 32.5 million barrels. That has been in place over the course of all these events and that has really given the oil price substance to rally quite strongly to where it now sits.

How come no one is talking about the demand-supply fundamentals? When crude prices came down, the crude bears were of the view that America has got surplus reserves and are producing much more than Saudi Arabia. There was also talk how US will start shale gas production once crude prices go above $55-56. How come those dynamics are not at play?

Domestic production in the US over the course of 2018 has, in fact, risen now, sitting at about 13.7 million barrels of production per day. Not so long ago, Donald Trump was suggesting that oil price was too high and can help the US oil industry to produce more.

With the current geopolitical events that we are seeing, the supply side constraints are in place. The oil price would have probably been sitting at $90 to $95 rather than where it is currently. That is probably the price we are paying for US domestic production coming on stream.

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