Fmr. Shell President: Thank Goodness for the Oil Glut

Global oil prices have been under pressure for nearly two years as a supply glut weighs heavily on the market. From 52 weeks ago, prices have dropped 33%, but John Hofmeister, former Shell Oil president, said he expects a hefty rebound by the end of the year.

“I haven’t changed my view,” he said on FOX Business Network’s Varney & Co. on Wednesday morning.

Hofmeister sees prices heading toward $80 a barrel by the end of 2016, but said there’s a lot riding on the forecast.

“A lot of it depends upon decisions made in Riyadh by the deputy crown price, and whether or not he and [Russian President Vladimir] Putin can do a deal to restrain production. Freezing production is not enough,” he explained.

Many of the world’s biggest oil producing nations have, since the start of the year, floated the idea of freezing output at January levels in order to help alleviate the supply glut and put upward pressure on prices. But when Iran – a nation that recently saw relief in international trade sanctions – said it would not participate in such action, talks fell apart.

Hofmeister said the action of OPEC nations to continue producing at high levels, which suppresses prices in light of the world’s oversaturated market, makes no sense.

“[They] are currently shooting the toes off their own feet –not each other’s feet, but their own feet – by spending all this money to maintain a low oil price. It makes no sense whatsoever in a rational world, but they’re doing it,” he said.

As for the glut, he continued by saying it’s actually comforting in one way.

“It’s a good thing we have a lot of oil in storage because it provides some security on the supply side. And I worry about the day that our storage starts to drop because then how do we protect ourselves from all the threats out there to what is otherwise a market situation that’s seeking equilibrium?” he said.