OREANDA-NEWS. January 23, 2017. US agriculture and commodities giant Cargill sees emerging Latin American markets, a stronger US dollar and Opec's ability to comply with its new output deal as possible threats to the nascent recovery in oil prices.

Brian Jenisch, Cargill's managing director for energy derivatives and Gregory Broussard, senior director for energy risk management, spoke with Argus this week at the Argus Americas Crude Summit. Below is an edited transcript of the interview.

Argus: What are the biggest risks that may derail the nascent oil market recovery?

Broussard: Coming into this year, one of the biggest things I see is potentially a collapse in emerging markets, particularly Latin America. With a rising rate environment in the US, the strong dollar policy is bearish for emerging markets – that could destroy some demand there. That is probably the biggest thing that no one is thinking about. We still have a potential for a hard landing in China.

What's the strong dollar going to do to commodity prices? To me that is the big policy issue. What does the world look like when you have divergent Fed policies – because we will be in a rate hike mode while the rest of the world is not.

For the first part of the year, the oil story will be a supply-driven Opec compliance story, it is going to be fundamentals. Then over the course of the year, some of these macro issues will come in to play in terms of how we reassess whether oil is going to go higher or lower. I personally think it is a highly volatile, range bound year. We are going to see a lot of volatility, but it will be tough to break out of a range.

Argus: What role will the dollar play in influencing oil prices?

Broussard: Clearly there is a role because crude is priced in dollars. Because we do have such a strong supply-side story going into this year, the dollar will be ancillary, but will still be important. And where you see the dollar really impact is on the extremes. So we come back to big events, and that is where we see the dollar really take hold. It is probably not the number one issue, but it is an issue we need to pay attention to, particularly in a rising rate environment.

Argus: What are the key factors supporting oil prices?

Broussard: The supporting factor is ultimately Opec. Opec has told you that prices are not going below a certain level. In a matter of two years, they have had two massive policy shifts in order to get the market where they wanted it to be. This is more of an issue of a floor as opposed to a top. But what we can say from an economic standpoint is that Opec has drawn a line in the sand.

Jenisch: The wildcard is: Can Opec police themselves? That is the biggest wildcard that everyone has to watch every day.

Argus: Do you see US oil producers stepping up their hedge positions?

Jenisch: 2016 was a pretty dormant time period, with not a lot of hedging taking place. But there is a magic number: \\$50/bl. If price got above \\$50/bl, producers came in and hedged, below \\$50/bl they didn't – it was either on or off. In the fourth quarter, when prices got above \\$50/bl, we definitely got active with producers coming in to hedge. They added some significant flow for 2017, but they were shorter-dated than what you would see historically. There was a lot of calendar 2017 and 2018, and nothing past that. Volumes were reduced as well. But they definitely picked up in the fourth quarter. It is certainly more active today than it was through the majority of 2016.