Abu Dhabi Investment Authority Among Those Predicting Sub $40/bbl Oil if OPEC Doesn't Extend Output Cuts

Even though at least one high-ranking oil expert has suggested that average oil prices would be the same with or without the Organization of the Petroleum Exporting Countries (OPEC) production cutback initiative, the urgency for the cuts to be extended continues to grow this week, with analysts including the Abu Dhabi Investment Authority warning that crude will probably drop to $40 per barrel unless the cartel and its allies maintain course beyond the June expiry date.

Christof Ruehl, head of research for the Authority, said at a Dubai conference that the six-month cuts have set a floor for prices, but "If OPEC and the coalition don't extend the agreement to continue cuts, that price floor will go; without it, prices would fall, and there's nothing to stop oil going below $40 a barrel."

Edward Bell, a commodities analyst at Emirates NBD PJSC, said, "The market is looking for a direction right now and ending the production cuts would be a negative for oil prices; without a deal, oil could certainly be pushed below $40."

Eugen Weinberg, head of commodities research at Commerzbank, agreed that $40 oil is "a clear option" should the OPEC deal be allowed to expire next month.

Without citing OPEC, Vital on Wednesday also offered a lukewarm view of the near future, with Dato' Kho Hui Meng, president and managing director of Vitol Asia, predicting that prices will likely range between the low $50s and low $60s a barrel this year and are unlikely to hit $70 due to excess supply.

He said, "The crude market tends to be a bit more in surplus than usual because of a lack of refining capacity," adding that he was unsure if the market would rebound once refineries came back on stream.

But as is the case in the crystal ball gazing game, for every bearish prediction there is a contrary forecast, and as oil prices continue to play out more or less in the $50-$55 range, famed oil investor Pierre Andurand is betting that slowing Middle East production and declining U.S. fuel inventories herald a rebound, according to a letter obtained by Bloomberg.

Andurand wrote, "While the price action year-to-date has proven to be extremely frustrating, our bullish outlook for oil prices has not changed; we maintain the view that front month oil prices will reach new highs over the next few months as fundamentals improve considerably going into the summer."

And even though Vital's Meng stated that supply is outpacing demand growth, Andurand wrote that "U.S. shale production would have to grow more for the market to offset demand growth and continuous supply declines"; such a ramp-up "will not happen without a sharp escalation in costs and therefore higher oil prices.

"Service costs have already been ratcheting up over the last six months; we expect cost inflation to continue and intensify."

On Tuesday, Fereidun Fesharaki, founder and chairman at FGE, told media that "If there was no OPEC, the prices would have gone down to $30-$40 and then gone to $70-$80 and then back down again to $50-$60....the average price with or without OPEC would be the same, but OPEC is putting a band, and that band is $50-$60."