Oil may drop to $40 as US stocks rise

Oil may drop to as low as $40 a barrel, if US stockpiles increase, an industry analyst warned yesterday.

Speaking at the Middle East Petroleum and Gas Conference, in Dubai, Fereidun Fesharaki, the head of industry consultant, FGE, said Opec is certain to extend cuts in oil output, when its ministers meet, later this month, and will need to keep limiting production until as late as the end of 2018.

Opec and 11 other producers, including Russia, agreed in December to pare production by 1.8m barrels a day during the first half of this year.

They’re seeking to eliminate an oversupply that depressed prices to less than half of their 2014 high, when benchmark Brent crude sold at $115 a barrel.

Brent crude dipped below $52 yesterday, amidst rising crude output and drilling in the US.

US oil output is poised to expand this year by at least 400,000 barrels a day, to 9.4m barrels.

The oil market needs more time to start using up stored inventories, which are on the verge of declining, the Dubai conference heard.

Opec plans to decide, on May 25, at a meeting in Vienna, whether to extend its production limits.

There’s a consensus that the group will extend the cuts into the second half, Saudi Arabian Minister of Energy and Industry, Khalid Al-Falih, said last week.

The reaction of global crude inventories to the cuts will determine how long Opec members and allied producers stick with their policy of pumping less oil to counter a global glut, said Mr Fesharaki, a former adviser in the late 1970s to the Iranian prime minister.

“The probability that Opec will agree to extend its cuts is at 100%.

“And the cuts will have to be extended even beyond this year, to the middle, or even to the end, of next year,” he said.

• Bloomberg