- West Texas Intermediate could explode 90% from current levels and reach as high as $70 a barrel by fall this year, according to the CEO of oil drilling company Canary.
- Dan Eberhart told Markets Insider US oil producers will see a “mini-supply shock” in Autumn as they have “over-cut production.”
- The OPEC is meeting on Thursday to discuss extending production cuts, although there are reports the meeting will be postponed.
- Eberhart doesn’t think any extension will help support prices, as OPEC members had only a 74% compliance rate on cuts in May, according to a Reuters survey.
- Eberhart expects OPEC’s compliance with cuts to fall further to about 50%.
- Track price of oil live on Markets Insider.
- Visit Business Insider’s homepage for more stories.
The CEO of an oil drilling company thinks the US oil market is headed for a “mini-supply shock” with US oil prices braced to rise over 90% to $70 a barrel by the fall as the US has “over-cut production.”
Dan Eberhart, chief executive of Canary Drilling Services told Markets Insider: “When US production numbers comes out, we are going to find out the US producers have cut more production than they needed to so there is going to be a mini supply shock for the US oil market.”
Eberthart added: “I see a case for West Texas Intermediate to approach $70 a barrel this fall.”
OPEC’s compliance with production cuts
But Eberhart thinks an upcoming OPEC meeting on Thursday will lead to a production cut extension in name only and lead to a further decline in OPEC’s compliance with production cuts.
Read More: A portfolio manager at a $4.6 billion shop breaks down his Warren Buffett-inspired approach to investing — and shares 3 stocks he loaded up on in a ‘really attractive’ market upended by the coronavirus
A survey published by Reuters last week showed that the 13-member OPEC bloc pumped 24.77 million barrels per day in May, down 5.91 million barrels from April.
But the global oil coalition decided on April 12 to slash production by a record 9.7 million barrels per day in May and June.
Reuters’ survey found that countries in May delivered only 4.48 million barrels per day of the pledged cuts, amounting to 74% compliance.
The world’s biggest producers are due to meet on Thursday to discuss further production cuts, although it has been reported that the meeting may be delayed until later in the month.
Russia and several other OPEC+ members are eyeing a one-month extension to cuts set to end in June, Bloomberg reported Monday afternoon. Saudi Arabia, OPEC’s leading member, was reportedly in favor of extending cuts for three months longer.
But oil prices touched $40 a barrel on Wednesday morning, the first time in three months. Saudi Arabia is now reportedly set to unwind extra production cuts it pledged last month, according to the Financial Times.
Read More: GOLDMAN SACHS: Buy these 15 stocks for powerful profit growth after a historic rally leaves the market with little room for error
Eberhart thinks OPEC’s compliance rate will fall to 50% from the roughly 75% now.
He said: “I think [the OPEC] is going to extend the cuts, but nobody wants to see downward pressure.”
He added: “If the compliance was 74% in May, the world is going back to work and the lockdown restrictions are getting eased, I think you are going to see the weaker players have a strong incentive to cheat.”
He referred to Iraq and Nigeria’s production cuts, which were much lower than its peers.
The survey showed Nigeria made only 19% of the promised reduction, while Iraq met 38% of its compliance obligations, still lower than its Gulf peers.
Eberhart said tensions between the US and China are more likely to hurt the US oil market than the Chinese one.
“Chinese have been very strategic in building up a petroleum reserve over the last few years. They are better prepared to withstand any kind of war or that reduces supply. Chinese are ready to withstand that type of shock whereas they were not five years ago.”
Eberthart added: “I think you are going to see a divergence in how WTI and Brent prices perform for the rest of the year.”
US prices turned negative for the first time in history in April but they have something which had caused jitters worldwide and prompted an emergency OPEC meeting and OPEC production cuts to kick in earlier than expected.
Prices have largely recovered since, with both benchmarks trading in the high-$30s as of Thursday morning.