Crude oil prices have been very volatile for the past three-four sessions because of Middle-East tension following a US air raid that assassinated senior Iranian military leader Qassem Soleimani in Baghdad last week.
However, in the past 14-18 hours, there was no new negative development and and that's why people were booking profit in crude oil prices, said Sushant Gupta, research director, Asia Pacific, Refining and oils market at Wood Mackenzie.
He said that there was also no actual impact on the supply in crude or the export in crude and that was what the markets were working with.
Clearly it was a lot of a sentiment impact and the kind of escalation that was seen in the Middle-East, especially with what happened in Saudi Arabia, in Iran, Iraq and with the US rhetoric, added Gupta.
There were various reports saying that, one from Eurasia, that there was just about a 40 percent chance of a war and 30 percent chance that crude oil prices spike up to $ 95 a barrel.
According to a Citi report, there was a possible retaliation and there could be attack on pipeline, shipping through Strait of Hormuz and this could lead to a huge spike in crude oil prices.
On the Middle-East tensions and escalation, Gupta said: “At the moment, in the short-term, we do see prices getting high because of US-Iran issues which we are seeing. Let us not forget that the prices are also being supported by the OPEC production cuts which will start happening as we reach March 2020."
"Also, US-China trade dispute is looking bit more positive now in terms of resolution that has been supporting the crude prices.”
He further added: “In our view Q1, 2020, is the market where we see over supply and hence that was the reason why OPEC had gone for deeper production cuts. From a fundamental perspective there is enough oil in the market to meet the demand growth for Q1 and the price should retreat if the issues are resolved between US and Iran.”
Talking about crude price for longer term, Gupta said: “For Q1, 2020, our initial forecasts were between $62-62.50 per barrel for Brent and now if the prices remain high for few weeks in January and maybe more we could see $3-5 premium to our base forecast.”
At 1 pm on Tuesday, Brent crude oil price was at $68.45 per barrel.
“At the moment we haven’t seen these events impacting supply, so there are fears that the supply could be impacted, but it hasn’t happened yet. In case in a hypothetical situation or a threat if Strait of Hormuz get impacted in flows and which flows around one-third of the world crude oil supply, that gets impacted then we could see price go beyond $75 per barrel.”