OPEC’s secretary-general said oil prices as high as US$200 a barrel are possible if producers fail to invest in new supply. Crude futures pared losses in London and New York.
“If you don’t invest in oil and gas, you will see more than US$200,” Abdalla El-Badri said in an interview in London on Monday, without giving a timeframe. Brent, a global benchmark, erased a decline immediately after his comments, before resuming its slide.
Crude prices tumbled 48% last year as Saudi Arabia and other members of the Organization of Petroleum Exporting Countries said they wouldn’t curb output in response to a supply glut. The International Energy Agency, the Paris-based adviser to 29 nations, said Jan. 21 that a decline in prices may deter investment in all types of energy.
“He is raising a valid concern that falling investments due to the current price collapse may leave us with little oil coming out of the ground in a few years time,” Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen, said by e-mail. “A move back above US$100 will bring the shale oil drillers out in force as they can relatively quickly react to rising prices” meaning US$200 probably won’t happen.
The global oil market is currently oversupplied by about 1.5 million barrels a day and OPEC is open to a meeting with nations outside the 12-nation group to tackle the glut, El-Badri said Monday. The market will be brought back into balance by a reduction in supply, rather than an increase in demand, he said.
Investment in oil production will fall by US$100 billion, or 15%, this year compared with 2014, Fatih Birol, chief economist at the IEA, said Jan. 21 at the World Economic Forum in Davos, Switzerland. This means oil at US$45 a barrel will be a temporary phenomenon, he said.
Brent crude for March settlement rose as high as US$49.29 on the ICE Futures Europe exchange in London, and was trading at US$48.48 at 2:35 p.m. local time. West Texas Intermediate, the main U.S. grade, advanced as much as 1.1% to US$46.11 on the New York Mercantile Exchange, before falling to US$45.43.
U.S. crude production rose to 9.19 million barrels a day on Jan. 9, the fastest pace in three decades, according to the Energy Information Administration, the Energy Department’s statistical arm. The boom was driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.
As prices slumped, oil drillers have reduced the number of rigs operating in the U.S. to the lowest in two years, according to data from Baker Hughes Inc. Jan. 23. Companies idled 49 U.S. oil rigs last week, bringing the total to 1,317 in the seventh weekly decline, it said.
“The current price cannot sustain non-OPEC supply where it was going the last year or so,” Robert Campbell, head of oil products research at London-based Energy Aspects Ltd., said by phone from New York. “This is not just U.S. shale, this is all sorts of places: North Sea, Russia.”
Most projects to develop oil resources in OPEC members will proceed at current prices, although some may be canceled, El- Badri said.