Here's Why Oil Could Drift To $30 Again

An OPEC agreement to extend 2016's supply reduction isn't going to be enough to help support oil prices, Fereidun Fesharaki, founder and chairman of consulting group FGE believes.

Fesharaki, considered to be a leading global energy market expert, told CNBC early Wednesday morning that OPEC's supply cut doesn't address the reality that there is too much oil in the market. In fact, some of the excess oil is coming from OPEC members such as Libya and Nigeria, who are exempt from the OPEC agreement.

The OPEC agreement calls for a continued reduction of 1.8 million barrels of oil a day, but Fesharaki believes an incremental 700,000 barrels per day reduction is required immediately with even more reductions required next year. Otherwise, there is "serious likelihood" that oil prices will drift to the $30 to $35 per barrel level and "stay there for a while."

Meanwhile, growing tension between Saudia Arabia and Qatar has resulted in a "yawn" from the oil market as it posses no threat to any oil production activities. Unless the tension results in military action, there will be no long-term impact to the oil market, the expert added.

Thankfully, military action isn't in anyone's interest, especially Saudia Arabia as escalating geopolitical tensions further "can get very ugly," he concluded.

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