Gary Ross, the founder of consultants PIRA Energy Group, said oil markets aren’t nearly as oversupplied as many believe and spare capacity is tight since Saudi Arabia is pumping all the crude it can without new drilling.
“Current prices are unsustainable,” he said Monday in an interview in London. “It’s hard not to see oil hitting $100 a barrel at some point in the next five years.”
Such views fail to take into account the impact of $50 oil on output outside North America as producers reduce spending, according to Ross. The likelihood of further disruption to OPEC supplies and the boost to consumption from cheap fuel also support prices, he said.
Brent crude, the global benchmark grade, was down 14 cents at $56.51 a barrel on the London-based ICE Futures Europe exchange at 9:51 a.m. local time on Tuesday. West Texas Intermediate oil fell 18 cents to $49.97.
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PIRA hosted a seminar in New York in October where Saudi officials hinted they would change their oil policy. OPEC’s biggest oil-exporting nation announced weeks later that it would maintain production to defend market share, sending prices plunging.
Saudi Arabia has already exhausted its ability to ramp up “instantaneous” production in the event of an outage, Ross said. The kingdom, which pumped a record of almost 10.6 million barrels a day in June, could raise output by 1 million barrels a day in 90 days with extra drilling, he said. That’s about half the spare capacity estimated by the Paris-based IEA.
“There’s not spare capacity to speak of instantly available,” Ross said. There are also growing geopolitical threats to supply, including from Islamic State, he said.