What is The Right Price of Oil?

The big question now is, what is the right price of Oil. Fadel Gheit, a Senior analyst at Oppenheimer had opined in March that any price of Oil above $60 is a result of speculation. Mukesh Ambani, of Reliance while addressing fellow refiners at Mumbai last week had asked them to be ready for oil prices between $80 to $100 during the year to come.

The fair price of oil is highly debatable. It will however have to be both sustainable for the producers as well as cost effective for the buyers. The range of $65 to $70 looks the likely price that will balance the interest of both groups as it leaves a healthy profit margin of $15 to $20 billion for big producers like Saudi Arabia and drives gasoline prices to a comfort zone for energy guzzling nations like US and China.

Buyers from Europe, India and South East Asia should now take advantage of the price dip and step up purchases to increase their stockpiles, as current prices are 13% below the 50 day moving averages. Any dip below $65 will make it nonviable for producers, forcing OPEC to cut production and cause another round of volatility.

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