OPEC's production cuts could push oil prices to $150 a barrel, energy analyst says

OPEC
A meeting of oil ministers of the Organization of the Petroleum Exporting countries, OPEC, in Algiers, Algeria.
AP/Sidali Djarboub

  • OPEC+ has floated a production cut. It could push prices as high as $150 a barrel, Paul Sankey said.
  • The cuts would worsen the energy supply shortage, which threatens many western nations as winter nears.
  • A revived Iran nuclear deal could boost supply, but that could take months to affect the market.  

OPEC+ has floated a possible production cut amid high volatility and low liquidity in the oil market, but that could push oil prices to $150 a barrel, energy analyst Paul Sankey warned, worsening the global supply rut for energy.

"The global supply picture is a mess. The Saudis themselves are telling you: there's nothing left," Sankey said in an interview on CNBC, referring to the cartel's warning it may lower oil production soon.

That's likely because demand for oil is still high compared to what producers are able to supply, and the cartel feels the current price of oil – which hovers around $90 a barrel – isn't reflecting the true state of the market, Sankey said.

The news of a production cut came soon after OPEC+ missed its production targets in June and July, and only promised a small hike of 100,000 barrels per day in September, a sign the cartel is running out of capacity to bring more oil to the market.

"I think what that was there was frustration from the Saudis," Sankey said of the production cut announcement. "They feel that so much liquidity is out of the paper market, that the price you see on your screen does not reflect the physical market behind." 

According to Sankey, global demand is still roaring at 100 million barrels a day, or 1,200 barrels every second. 

But lowered output from OPEC+ has the potential to deliver a painful spike in prices, and worsen the current supply shortage in the energy market. Low supply is threatening to throw western nations into an energy crisis come winter – unless extra energy supplies can be secured, or countries can make serious cuts to consumption

And the supply side of the equation isn't looking great. Sankey said there are only 10 or so other countries in the world that can offer an additional 100,000 barrels per day in supply. 

The US, for starters, has already tapped its emergency reserves and is exporting an additional million barrels a day, which has only led to modest price decreases. WTI crude is down around 24% from its mid-summer highs, and Brent crude is only down by 20%.

"It's not working too well," Sankey said. "So yeah, it's very concerning." 

A saving grace could be Iran, which has the potential to bump up its oil exports if the nuclear deal is revived. Sankey estimates that could bring another 60 million-70 million extra barrels a day to the market, though some analysts believe a renewed deal would take months to kick into effect and start impacting the oil market.

Deal icon An icon in the shape of a lightning bolt.

Keep reading

Close icon Two crossed lines that form an 'X'. It indicates a way to close an interaction, or dismiss a notification.