Oil outlook: $20 possible if macro-economic climate worsens; for now – favouring a range trade

OPEC has discounted everyone to death, says Gaurav Sharma, Oil Analyst at Sharecast & Digital Look, as he joins the Tip TV Finance Show to discuss the outlook for Oil prices, and the oil majors – Shell and BP.

Oil output unlikely to dip until 3rd quarter 2016

Sharma starts by saying that the OPEC is discounting everyone to death. OPEC production has fallen, but still remains at high levels.

The sentiment is in favour of too much oil in the market, says Sharma. He adds that there is so much oil out there that the demand for the next year as expected could be met twice over. Sharma remains of the view that the oil output won’t come down at least until 3rd quarter 2016.

Saudi’s can produce oil at 9$/barrel

Sharma says that the market called the bluff of the Saudi’s, having only taken out half of the frackers.

The supply story bodes bad for oil prices, but the consumption pattern is not too bad. The market remains trapped in doldrums, the demand has not materially altered. Only if we see a dip in demand will the prices dip dramatically.

While markets keep predicting a huge flow in barrels from Iran, Sharma explains that the importers have reprogrammed themselves to import from Saudi sources in absence of Iranian crude, so the argument that Iran will flood the market with crude is flawed.

Crude oil futures – Sharma sees crude prices stuck at current levels, and sees the price action in for a sideways trade.

Shell: Hold onto your positions

On the outlook for the share prices of Shell, Sharma notes that the fundamentals of the company remain strong, and he suggests holding on to the positions until the Shel-BG deal is resolved.

BP: Well placed fundamentally

Technically, the stock remains a buy towards 4 GBP, while holding above 3.5 GBP.

For further insights on the oil majors, watch the video interview