Cheap oil is here to stay, although new Iran sanctions pose risk: FGE

Oil prices will remain relatively low in the next year or two as supplies remain ample despite ongoing cuts by OPEC, although potential new sanctions by the United States against Iran pose upside risk to the market, the president of consultancy Facts Global Energy (FGE) said. 

Starting this year, the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia have agreed to cut output by 1.8 million barrels per day (bpd) in order to prop up prices. 

While this was resulting in a gradually tighter market compared with the strong overproduction of the 2017 to 2016 period, FGE President Jeff Brown told the Reuters Global Commodities Summit that fuel inventories would likely remain high in 2018 and 2019. 

“We don’t see big reasons for inventories to go down a lot from still high levels now. Hence we don’t see big reasons for prices to go up or down by much in 2018, and it’s similar for 2019,” Brown said in Singapore on Wednesday. 

With production in the United States expected to rise from around 9.5 million bpd now to over 10 million bpd next year, Brown said OPEC would have little choice than to extend the production cuts beyond their currently scheduled end in March 2018.

One of the biggest risks to oil supplies and prices are potentially new U.S. sanctions against Iran, which President Donald Trump is threatening to impose, not two years after they were lifted under a 2015 deal between Tehran and leading world powers after Iran agreed to limit its disputed nuclear program.

Despite strong oil demand growth, especially from emerging economies, and the risk of unexpected supply disruptions, Brown warned against industry hopes for a return to $100 per barrel prices.