Oil prices may exceed $100, says former US energy secretary on failed OPEC+ talks

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Former US Energy Secretary Dan Brouillette told CNBC on Tuesday that oil prices could “very easily” reach $100 a barrel in the wake of the failed OPEC+ talks.

“You can easily see oil getting to $100 a barrel – maybe even higher,” CNBC’s Hadley Gamble told CNBC.

On the flip side, it’s also possible for prices to collapse as well.

“If there is no agreement on production, and countries tend to go out and do their own thing, or do their own production, there could be a crash in oil prices,” said Brouillette, who served as US Secretary of Energy from 2019 through 2019.

OPEC and its allies, collectively referred to as OPEC+, twice failed to reach an agreement on oil production last week. On Monday, another attempt to restart talks collapsed, and discussions were postponed indefinitely.

The energy alliance, which includes Russia, sought to increase supply by 400,000 barrels per day from August to December 2021 and proposed extending the period of cuts until the end of 2022. Last year, to counteract reduced demand due to the pandemic, OPEC + agreed to cut production by about 10 million barrels. Daily from May 2020 to the end of April 2022.

I think countries realize that $100 a barrel of oil is not going to be in their interest.

Dan Yergin

Vice President of IHS Market

The UAE has indicated that, while it supports the proposal to increase the supply, it objects to the terms of the extension.

Prices rose to their highest in three years after those talks collapsed on Monday. On Tuesday during Asian trading, they jumped higher. US crude exceeded $76 a barrel, and international benchmark Brent crude rose to $77 a barrel.

Oil expert Dan Yergin warned that a rise in oil prices to $100 would destroy demand, and said that would not be in the interest of countries.

“I think countries realize that $100 a barrel of oil is not going to be in their interest,” Yergin, vice president of IHS Markit, told CNBC’s Street Signs Asia on Tuesday. “You’ll see governments inject more incentives into electric cars, and you’ll see the impact on demand.”

It is noteworthy that the UAE and Saudi Arabia are going on two different paths

OPEC+ is led by Saudi Arabia, a close ally of the UAE. But the breakdown of those talks, and the UAE’s objection to the terms, reflect a rare public rift between allies.

Both Brouillette and Wirgen said the spat between Saudi Arabia and the UAE was “amazing.”

“I find it surprising that the UAE has veered away from Saudi Arabia, the old ally within OPEC and OPEC+,” Brouillette said.

Yergin also said that the rift between the two countries was remarkable given that until recently both countries had been “quite at a fairly steady pace”.

“I think one side or the other is going to have to give up… there has to be… a lot of horse trading, they say, to get and keep a deal together,” he told CNBC on Tuesday.

Brouillette noted that while they are on divergent paths in this matter, they both have similar goals and require revenues from oil production for new investments.

What the United States and Russia can do

It was said that US President Joe Biden is likely to focus more on renewable energy rather than oil. By comparison, his predecessor, Donald Trump, was more vocal about energy prices.

Brouillette said although the United States is not a member of the Organization of Petroleum Exporting Countries and is not expected to negotiate the price of oil, it is important that we have an intermediary force.

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“The United States is one of the world’s three largest producers, and it’s important … that we’re in those conversations, that we use (the G-20) and the other forums that are available to us, to bring all of the world’s partners hopefully to mediate and mitigate some of the worst outcomes that can happen. In these kinds of situations.”

Brouillette also said he is “closely watching the Russians” who lead non-OPEC countries.

“They are well known and they are good at exploiting any divisions in these talks,” he said. “To the extent that Emirati and Saudi society remains separate on this important point, I would expect to see the Russians fill any void”

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