The market is seeing early signs of an oil price bottom as Saudi Arabia and Russia begin to feel the pressure stemming from the glut, Petrie Partners chairman Tom Petrie said Thursday.
Oil prices rallied in the last two sessions on hopes that top oil producer Russia will cooperate with OPEC and the Saudis to strike a deal to tackle oversupply through production cuts.
Saudi Arabia has led OPEC’s policy of keeping production steady and defending market share. But Petrie, who has advised the Saudis on oil policy, said Russia and Saudi Arabia now have a common interest in somewhat better prices.
“Both of them are more in need of an improving price picture than I think has generally been recognized,” he told CNBC’s “Squawk Box.”“When you load in their social and security costs, it’s quite clear that somewhere around $30 per barrel really begins to pinch them.”
“This is the year for the inflection point,” he added.
Russian officials have decided they should talk to Saudi Arabia and other OPEC countries about output cuts to bolster oil prices, the head of Russia’s pipeline monopoly said on Wednesday.
But there was still a long journey from starting discussions to actual cuts by Russian oil producers, with many of them saying reducing output was technically very difficult and could lead to Russia losing market share to its competitors.
Petri said he believes oil and gas exporting nations like Russia and Saudi Arabia can live with the short-term pain of selling less crude. “They don’t have to cut back much. It’s a matter of taking the foot off the pedal just a little,” he said.
As for the Saudis’ more than year-long output strategy, Petri said they had successfully forced high-cost producers such as U.S. shale drillers to reallocate capital away from developing new oil production last year, and those capital spending cuts will continue in 2016.
“In all likelihood, with those two back-to-back years, they will have accomplished much of what their goal was with respect to that,” Petrie said. “And they’ve also sent signals to both Iran and Russia that this is not a great path for any of them on a long-term basis.”
Oil and gas projects around the world worth $380 billion have been postponed or canceled since 2014, according to Wood Mackenzie, an energy consultancy.
—Reuters contributed to this report.