“I think Saudi Arabia does have capacity that can bring to the market,” BP’s chief executive Bob Dudley told CNBC on Wednesday on the sidelines of the Oil & Money Conference in London.
“But on the other side of it you have very unpredictable circumstances in Venezuela and of course, with the Iran sanctions,” Dudley noted, commenting on the current market forces driving the oil prices.
As the start date of the U.S. sanctions on Iran’s oil is less than four weeks away, the market is jittery and prone to emotional reactions regarding the two key uncertainties over the next couple of months—how much Iranian oil will be lost to the U.S. sanctions, and how much spare capacity Saudi Arabia can bring (or is willing to bring) to offset possible steep losses.
Analysts are estimating that the sanctions on Iran will remove at least 1 million bpd from the market, with some predicting losses could be as large as 2 million bpd.
The only really large spare capacity is in Saudi Arabia, but the issue with this is that it has never been tested, because Saudi Arabia has never pumped more than 10.72 million bpd, its all-time high record from November 2016. Last week, the Saudis hastened to inform the market that they are currently pumping 10.7 million bpd - just shy of the all-time record high - and could even tweak that 10.7 million “slightly higher” next month.
In view of those uncertainties, BP’s Dudley told CNBC that he expects in terms of oil prices that “it’s going to be 45 days of extreme volatility, it could spike up, it could also go the other way.”
“If waivers were granted to others, to big oil consuming countries, you could see it (the price) go down, there’s a lot of uncertainty right now,” Dudley said.
Asked about whether oil prices at $85 have already resulted in demand destruction, Dudley told CNBC, “we don’t see that destruction.”
Volatility in prices won’t be permanent and we’ll get back to the fundamentals, BP’s chief executive said, noting that the UK supermajor is keeping disciplined spending by budgeting at oil prices at $60 to $65 a barrel.