Oil market 'tightening up very quickly' and $90 per barrel is in sight, analyst says

  • Middle East oil ministers told CNBC Monday that they didn't believe oil prices would rise above even $80 in the near term, particularly given Saudi Arabia and Russia's pledge to up production.
  • But, Amrita Sen, a chief oil analyst at Energy Aspect, disagrees.
  • She said potential disruptions threatening certain oil exporters' production capabilities could lead to a sharp increase in prices.

Very little spare capacity in the market leaves $90 for a barrel of oil a very likely prospect by November, one industry expert told CNBC.

Middle East oil ministers told CNBC Monday that they didn't believe oil prices would rise above even $80 in the near term, particularly given Saudi Arabia and Russia's pledge to up production.

But, Amrita Sen, a chief oil analyst at Energy Aspect, disagrees. She said potential disruptions threatening certain oil exporters' production capabilities — namely, economic turmoil in Venezuela, social unrest in an oil-rich area of Iraq and U.S. sanctions on Iran — could lead to a sharp increase in prices.

"The critical thing is that Venezuela's (production) continues to drop, Iran is finally falling and we had that big timing mismatch — OPEC had increased production too soon, now Iran is falling so the market is really, really tightening up very quickly," Sen told CNBC's "Street Signs" Tuesday.

"Iraq, Libya, Nigeria … All three are very, very unstable and only one of these protests really needs to go bad and production will come off," Sen said, referring to protests in Iraq's oil-rich south and potential further oilfield shutdowns in Libya.

"This is the issue we have — OPEC has already increased production and near-term capacity is very limited, I would say about 300,000 barrels per day. Russia is already maxed out (in terms of output), Iraq is maxed out, so that means if you have any other outage … We just don't have any spare capacity to absorb it. Immediately, the market will feel the shortage."

Saudi Arabia capacity

Middle Eastern producers would beg to differ. Saudi Arabia, the de facto leader of the OPEC group of oil producing countries, has said it is ready to offset any shortage of supply from Iran after sanctions.

Saudi Arabia and Russia already pledged a "measurable" (but undefined) boost to their oil output from July. This pledge came a few days after President Donald Trump criticized the deal between OPEC and non-OPEC producers to curb output to raise prices from their 2015 slump. The deal worked as prices have risen to the $70 to $80 mark. Trump critiqued the deal, saying it made prices "artificially high" and was bad for consumers.

Prices could rise further due to Trump's forthcoming sanctions on Iran's oil industry, due to be reimposed after his decision to withdraw from an international nuclear deal with the country.

Prices in the $90s?

Middle Eastern producers are keen to reassure markets, however. Oman's oil minister told CNBC Monday that he didn't see oil prices breaching the $80 per barrel level despite Iran supply risks.

Sen said Energy Aspects' view is "a bit different."

"Given the physical tightness we're seeing in the market, come November, we definitely see significant upside in prices, as we discussed, there isn't enough spare capacity so (prices could go) into the 90s."

Energy Aspects believed that sanctions on Iran's oil industry, due in November, would prompt Iran's production to drop from 3.7 million to 3.8 million barrels per day (bpd) to 2.2 million to 2.4 million bpd by the end of the year.

Sen said Iranian supply was already falling after a first round of sanctions were imposed on Iran in August. "From August onwards we've seen a significant decline in (Iranian) exports, because the dollar sanctions kicked in, we are expecting exports to decline by 1.5 million to 1.7 million barrels per day from average 2017 levels," she said.

Flames rise from the burning of excess hydrocarbons at the Hammar Mushrif new Degassing Station Facilities site inside the Zubair oil and gas field.
HAIDAR MOHAMMED ALI | AFP | Getty Images
Flames rise from the burning of excess hydrocarbons at the Hammar Mushrif new Degassing Station Facilities site inside the Zubair oil and gas field.