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Business News/ Industry / Energy/  Opec’s El-Badri says $200 oil possible with lack of investment
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Opec’s El-Badri says $200 oil possible with lack of investment

Brent crude for March settlement climbed 0.3% to $48.95 a barrel on the ICE Futures Europe exchange in London

A file photo of Opec’s secretary-general Abdalla El-Badri. Photo: BloombergPremium
A file photo of Opec’s secretary-general Abdalla El-Badri. Photo: Bloomberg

London: Opec’s secretary-general said oil prices as high as $200 a barrel are possible if producers fail to invest in new supply.

“If you don’t invest in oil and gas, you will see more than $200," Abdalla El-Badri said in an interview in London on Monday, without giving a timeframe. West Texas Intermediate, the US crude benchmark, erased a decline of as much as 2.7% following his comments.

Crude prices tumbled 46% last year as Saudi Arabia and other members of the Organization of Petroleum Exporting Countries (Opec) said they wouldn’t curb output in response to a supply glut caused in part by surging US shale oil production. The International Energy Agency, the Paris-based adviser to 29 nations, said 21 January 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," Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen, said by e-mail Monday. Prices as high as $200 probably won’t happen because “a move back above $100 will bring the shale oil drillers out in force as they can relatively quickly react to rising prices."

West Texas Intermediate for March delivery advanced 1.3% to $46.19 a barrel on the New York Mercantile Exchange at 12:19 pm local time. Brent crude for March settlement climbed 0.3% to $48.95 a barrel on the ICE Futures Europe exchange in London.

Price spike

“I think the sudden oil spike we saw earlier is linked to the El-Badri comments," Giovanni Staunovo, a commodity analyst at UBS Group AG in Zurich, said by e-mail Monday. “Particularly the ones where prices could hit $200 with insufficient investments and the fact that they’re open to talks with non- Opec to balance the market."

There’s an oversupply of about 1.5 million barrels a day on the oil market and Opec is open to a meeting with nations outside the 12-member group to tackle the glut, El-Badri said. 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 $100 billion, or 15%, this year compared with 2014, Fatih Birol, chief economist at the IEA, said at the World Economic Forum in Davos, Switzerland on 21 January. This means oil at $45 a barrel will be a temporary phenomenon, he said.

Drilling rigs

US crude production rose to 9.19 million barrels a day on 9 January, the fastest pace in at least 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 reduced the number of rigs operating in the US to the lowest in two years, according to data from Baker Hughes Inc. Companies idled 49 US oil rigs last week, bringing the total to 1,317, in the seventh weekly decline, it said 23 January.

“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 Monday. “This is not just US 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. Bloomberg

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Published: 27 Jan 2015, 09:33 AM IST
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