Oil and Gas

Oil prices are looking 'frothy' and could lead to a correction, BP finance chief says

Key Points
  • Crude futures stood within $1 of highs not seen in more than three years on Tuesday morning, amid a broad price recovery which has helped the resurgence of some of the world's largest oil and gas groups in recent quarters.
  • "Sometimes people forget that actually, it was not that long ago we were down at $28 a barrel … I think oil prices today feel a bit frothy," Brian Gilvary, CFO at BP, told CNBC's "Squawk Box Europe" Tuesday.
  • Analysts have warned the energy market is extremely sensitive to any geopolitical developments, especially regarding the outcome of the Iran nuclear deal and sanctions.
Oil prices are frothy, driven by strong oil demand: BP CFO
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Oil prices are frothy, driven by strong oil demand: BP CFO

Oil prices look to have climbed to unsustainable levels and could soon start to fall away from multi-year highs, BP's chief financial officer (CFO) told CNBC Tuesday.

Crude futures stood within $1 of highs not seen in more than three years on Tuesday morning, amid a broad price recovery which has helped the resurgence of some of the world's largest oil and gas groups in recent quarters.

"Sometimes people forget that actually, it was not that long ago we were down at $28 a barrel … I think oil prices today feel a bit frothy," Brian Gilvary, CFO at BP, told CNBC's "Squawk Box Europe" Tuesday.

He added the recent uptick in crude futures had most likely been driven by elevated global demand and a stronger-than-expected alliance to OPEC-led production cuts.

Iran nuclear deal

The price of oil collapsed from highs of almost $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC's reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to implement output cuts — along with other oil-producing nations — in late 2016.

Alongside Russia and other allied producers, OPEC has spearheaded an ongoing international effort to try to clear a global supply overhang and prop up prices. The agreement, which came into effect in January 2017, has already been extended through until the end of this year — with producers scheduled to meet in June to review policy.

The output controls have widely been viewed as a success, with several major global producers honing in on achieving their original aim of reducing industrialized oil nations' back to their five-year average.

Oil may stay at $70 if producers maintain compliance with OPEC cap: BP CFO
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Oil may stay at $70 if producers maintain compliance with OPEC cap: BP CFO

Nonetheless, analysts have warned the energy market is extremely sensitive to any geopolitical developments, especially regarding the outcome of the Iran nuclear deal and sanctions.

In less than two weeks, President Donald Trump must decide whether to continue suspending sanctions against Iran under the current nuclear accord, or restore penalties on one of the world's biggest oil producers.

"Geopolitics is now playing into where the price is and so I think you could see an oil price correction quite comfortably," BP's Gilvary said.

Global benchmark Brent traded 0.3 percent lower at $74.46 during early morning deals Tuesday, while West Texas Intermediate (WTI) stood at $68.43, down around 0.2 percent.