Tight global oil supply outside the United States and healthy demand, particularly in Asia ahead of summer, will help keep Brent crude prices well supported, a senior trading executive at Southeast Asia's biggest bank said. Prices have surged more than 17 percent so far this year due to supply concerns triggered by mounting Western sanctions on Iran over its nuclear programme.
The US and its allies suspect Iran is developing nuclear weapons, which Tehran denies. Limited spare capacity as Opec pumps above its quota to fill the gap left by lost Iranian barrels has kept Brent in steep backwardation - where prices in distant delivery months are lower than immediate contracts - said Leong Chean Wai, managing director of Commodity Derivatives Treasury and Markets at Singapore's DBS Bank. "There is not a lot of spare capacity in the market now," Leong said at the Reuters Global Energy & Environment Summit.
"OECD inventory is not high and product demand is quite strong from Asia. There is more opportunity for prices to spike," said Leong, who joined DBS in June 2011 after a 13-year career at the Government of Singapore Investment Corp. Rising demand for oil from Japan to fire generators, as the nation's nuclear power plants stay offline after last year's devastating Fukushima crisis, and from other emerging economies in Asia may further tighten supplies. Saudi Arabia's oil minister Ali al-Naimi said over the weekend that he would prefer to see inventories build further before the seasonal increase in consumption kicks in the second half of the year. But Brent crude prices could come under pressure if there is a swift resolution to the Iran nuclear stand-off, Leong said, adding that any impact would, however, be temporary as the market focus would switch back to the rising global demand.