A flurry of intensifying upside risks could trigger an energy market “crunch” over the coming months, according to the chief executive of BP.
His comments come at a time when energy market participants expect U.S. sanctions on crisis-stricken Venezuela, as well as OPEC-led production cuts, to offset a potential supply glut this year.
When asked whether production cuts from the so-called OPEC+ coalition were likely to help stabilize oil prices, Dudley replied: “Well, there’s a lot of variables here and there’s a lot of things that could lead to a real crunch.”
Speaking to CNBC’s Dan Murphy at an energy forum in Cairo, Egypt, Dudley cited “tragic circumstances” in Venezuela, uncertainty in Libya, rising production levels from the Permian Basin and the impact of U.S. sanctions on Iran.
“So, the OPEC+ countries agreed to reduce production in the first quarter, we don’t even really have data from it. We will have to see what the data looks like but the markets feel tight to me.”
“We plan BP on a sort of fairway, which I think is good for the world, between $50 a barrel and $65. That’s good for producers and consumers,” Dudley said.
Brent crude, the international benchmark for oil prices, was trading at $61.90 a barrel Tuesday morning, up 0.6 percent, while West Texas Intermediate (WTI) stood at $52.68, 0.5 percent higher.
OPEC and its allied producers, including Russia, agreed to impose output cuts from the beginning of January in order to prevent a global supply overhang.
The Middle East-dominated group began capping supply in partnership with Russia and several other nations in January 2017 to end a punishing downturn in oil prices.
The oil industry is generally optimistic that the measures imposed by OPEC and non-OPEC members could help balance the energy market over the coming months. But, some are concerned supply-side risks were not receiving enough attention.
When asked whether he would like to see OPEC and non-OPEC producers taking further action to support the energy market at their next meeting in April, Dudley replied: “I think as an international oil company subject to the markets, I shouldn’t have a view on that actually.”
“I think what is important though is when prices are too high or too low, it leads to all kinds of unintended consequences,” he added.