The oil price is currently at a high in the middle of forming a double-bottom with prices heading back down again to test the lows of this year before they go to $65 to $85-a-barrel for WTI crude, Breitling Energy CEO Chris Faulkner told ArabianMoney in Dubai this morning.
But he does not see oil prices back above $100 before 2020, confounding the optimists in the industry.
The Dallas-based oilman is en route to making a speech in London at an event organized by Platt’s where he is set to explain how a ‘fracklog’ in US production threatens to flood the oil market anytime prices get above $60-65 a barrel, as has already happened.
‘I think Saudi Arabia has been surprised by the resilience of the US fracking industry,’ he said. ‘They did not realize that 90 per cent of our wells are drilled but not fracked and can therefore be brought quickly into production at little additional cost.
‘Once the price of oil passes about $65-a-barrel we can have oil back on stream in two to four weeks. We have become the swing producer of the world oil market, replacing Saudi Arabia.
‘There are 4,000 wells not producing but ready to provide this quick supply. The Saudis don’t seem to have realized that our capacity would not just be shutdown and go away.’
Mr. Faulkner’s view is that this potential supply will keep the lid on higher oil prices for a long time, with no chance of $100-a-barrel oil again before 2020.
‘That is, of course, on top of all the oil floating in tankers around the world at the moment. Iran has 35 million barrels in tankers and there is plenty more oil supply waiting to come back from Libya, Iraq and Iran.
‘How long can Saudi Arabia afford to continue its current strategy? Nobody knows. But it looks like the days of OPEC price management are over.’
What could change this forecast? Mr. Faulkner admits his calculations could be disrupted by war or geopolitical instability, although he notes that oil traders have learnt to live with the civil wars in Yemen and Syria.
Would the upcoming change of US administration in 18 months’ time change anything? It naturally depends who wins and we don’t know the candidates yet, although there are front runners.
Mr. Faulkner would like another man with his roots in the oil business, Jeb Bush, to be the next president who he reckons would be ‘more pro-Saudi and anti-Iran than the current administration’ though equally committed to energy independence for North America. Mrs. Clinton would be a less easy call.
He’s saying the current oil price is a ‘W’-shape and that we are at the top of the middle right now. What could also pull oil prices back down, aside from the supply-demand dynamics of the ‘fracklog’, is another global financial crisis.
In 2008 the first global financial crisis pulled oil down to $34 and Mr. Faulkner sees $40 in similar circumstances, possibly as soon as this autumn.