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Strong Supply Leaves No Room For Higher Oil Prices

Steady growth in oil supplies, particularly from U.S. shale, coupled with OPEC's refusal to curtail production, could keep prices near current lows for years to come. 

World oil prices fell more than 1 percentage point today after Saudi Arabia said it would not cut its own output from near-record levels without corresponding cuts from both OPEC and non-OPEC nations.

"Higher prices will only come with a substantial reduction in Saudi output," Dr. Fereidun Fesharaki, Chairman, FGE - FACTS Global Energy, said during a panel discussion at the 2015 Asian Investment Conference. "Then we may get to USD80 or USD90 a barrel".

Fesharaki likened the Saudis to a policeman trying to direct traffic at a busy intersection. "No one listens. All the cars are crashed. And the policeman is not coming back unless the mess is cleaned up."

Even if OPEC could agree to reduce output, any price increases would likely draw even more shale oil production from the U.S., which has already helped lower oil prices by 50 percent in the last year. Benchmark Brent crude was trading near USD54.65 a barrel early Monday, with U.S. WTI at USD45.85.

"You may have to wait 15 to 20 years, if ever, to get back to the higher prices," Fesharaki said.

Meanwhile, a potential deal to lift sanctions on Iran could enable that country to bring even more supply to the market, which could lower prices another USD5 per barrel, Fesharaki noted.

In a world flush with oil, could it raise the specter of a Western embargo on energy from Russia, to increase the impact of existing sanctions related to the conflict in Ukraine?

"The world cannot do without Russia's energy," Fesharaki said. "Adjusting would require a 15-to-20 year plan" and trillions of dollars.

The EU gets about a third of its natural gas from Russia, with much of that flowing through Ukraine.

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