“I think it’s going to be 45 days of extreme volatility, it could spike up, it could also go the other way,” Bob Dudley told CNBC.
Dudley’s comments come at a time when oil market players are closely watching what happens when US sanctions on Iran’s oil industry come into force on November 4.
It’s hard to be precise over how much of Iran’s production will be affected by the sanctions. It largely depends on whether the country’s oil-buying customers are afraid of secondary sanctions from the US if they do business with Iran. BP's competitor Total announced in August that it was pulling out of a giant oil and gas project in Iran.
But BP and Serica Energy were granted a new license Tuesday to run a North Sea gas field partly owned by Iran showing the US is willing to make some exemptions to the reach of the sanctions.
Three days ago, India also said it will buy nine million barrels of Iranian oil in November, two industry sources said, indicating the world’s third-biggest oil importer will continue purchasing crude from Iran despite US sanctions, Reuters reported.
Meanwhile, a US government official said on Friday the administration is actively considering waivers on sanctions for countries that are reducing their imports of Iranian oil.
“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.
Some analysts predict as much as 1.5 million barrels per day could be removed from the market, an event that could cause prices to rise further. On Wednesday, Brent crude futures were trading at $84.96 per barrel while US West Texas Intermediate was trading at $74.92.
No fall in demand
Dudley didn't see demand falling as a result of high prices due to global GDP growth (seen at 3.7 percent in 2018 and 2019 by the International Monetary Fund) still being robust. "It's still growing demand; it might be a little bit off but we don't see that destruction yet," he said.
"You look at the GDP (gross domestic product) growth in the world and that's a very indicator on the demand growth for oil and it has been for decades and decades… If you start to see half a percent come off GDP growth around the world, it might be a 200,000 barrel-a-day drop in demand, the way our economists view it, and it's not that much," he said.
US President Donald Trump has called on OPEC to increase production to mitigate any Iranian shortfall and impact on prices.
Saudi Arabia, the de-facto leader of OPEC, says it has the spare capacity to fulfill any shortfall created by Iran, but Iran has disputed that.
Iran’s Minister of Petroleum Bijan Zanganeh dismissed Saudi claims, saying that the global market will never believe such claims.
Trump announced in May that Washington was pulling out of the nuclear agreement and reimposed sanctions against Tehran.
A first round of American sanctions took effect in August, targeting Iran’s access to the US dollar, metals trading, coal, industrial software, and auto sector. A second round, forthcoming on November 4, will be targeting Iran’s oil sales and its Central Bank.
The Trump administration is pushing on all buyers of Iranian oil to cut imports to zero. But Iran, OPEC’s third-largest producer, has repeatedly announced that its oil exports cannot be reduced to zero because of high demand levels in the market.