Amid tensions caused by the execution of a prominent Shiite cleric by authorities in Saudi Arabia, John Kilduff, one of the founding members of Again Capital, has predicted that oil could break the $20 price support point in 2016. Previous estimates had only suggested prices as low as $30 in the coming year.
During an interview with CNBC, Kilduff predicted that the breakdown of diplomatic relations between Iran and Saudi Arabia could escalate an already severe global oil glut. Iran, which has been under economic sanctions for many years, is expected to reopen itself as a seller of oil into the global market this year when sanctions are lifted in exchange for the dismantling of its nuclear program. “The Iranians doubled down again, if that’s even possible, by saying that they could put 500,000 more barrels on the market within weeks after the sanctions get lifted,” Mr. Kilduff said.
In late 2015, an attempt by Saudi Arabia to cap OPEC oil production and thereby restore price stability was blocked by Iran’s refusal to limit its own production. “OPEC maybe as we know it is over because these two are not going to be coming together any time soon on modifying or moderating production,” said Kilduff during his interview, referring to the tension between Iran and Saudi Arabia.
The same series of events that led to the breaking of diplomatic ties between Iran and Saudi Arabia has also led Bahrain, Sudan, the United Arab Emirates and Kuwait to sever or significantly reduce their ties to Iran. Thus far, the tensions have served to briefly stabilize the price of Brent crude oil, leaving it at $38 per barrel as of early trading on Monday. The full effect of the tensions, however, will not be known until the lifting of the sanctions allows Iran the option of increasing the global surplus of oil.
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