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U.S. Shale Patch Welcomes OPEC Deal – But Needs $60 Oil

Although OPEC’s decision to take…

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No OPEC Cut Needed, Says Saudi Oil Minister

Saudi Arabia’s oil minister surprised…

OPEC Chief Claims Oil Will Rebound Higher Than In 2008

OPEC Chief Claims Oil Will Rebound Higher Than In 2008

OPEC’s secretary-general says the 7-month-old plunge in oil prices finally may have bottomed out and may be ready to rise again. In fact, Abdullah al-Badri hypothesized that a decision by his cartel to cut production conceivably could lead to oil at $200 a barrel.

“Now the prices are around $45 to $55 [per barrel], and I think maybe they reached the bottom and will see some rebound very soon,” al-Badri said Monday in an interview with Reuters in London, and if OPEC cut production, that price certainly would rise, perhaps to unimaginable levels.

“Suppose we cut production, and then we’ll have spare capacity,” he said. “Producers, when they have excess capacity, they will not invest [in new sources of oil]. If they do not invest, there will be no more supply. If there is no more supply there will be a shortage in the market after 3-4 years, and the price will go up and we’ll see a repetition of 2008.” Related: Did Saudi Arabia Just Flinch?

In a separate interview with The Telegraph, al-Badri recalled that in 2008, a similar lack of investment drove the price of a barrel of oil as high as $147, though it quickly crashed with the onset of the global financial crisis. But in the current climate, he said, the market could “rebound back higher that the $147 we saw in 2008” – perhaps even as high as $200 per barrel.

In the meantime, OPEC has deliberately created an oil glut of about 1.5 million barrels a day by refusing to cut production below 30 million barrels a day, a level set three years ago. The point of creating the glut has been to bring down oil prices to the point where expensive shale drilling, especially in the United States, ceases to be profitable.

But the oil glut created by OPEC won’t be erased by a rise in demand, but only by a cut in production, according to Ole Sloth Hansen, an analyst at Denmark’s Saxo Bank in Copenhagen. And then the market will stabilize – not at $200 per barrel, but more like $100 per barrel, he said.

“[Al-Badri] 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,” Hansen said in an e-mail to Bloomberg News. “A move back above $100 will bring the shale oil drillers out in force as they can relatively quickly react to rising prices.”

And in a message to The Wall Street Journal, the investment bank Simmons & Co. International said al-Badri’s comments show that “OPEC will continue to monitor the oil markets and adjust strategy as the market evolves, but do not necessarily imply any action is imminent.” Related: What’s Next For OPEC?

In fact, Al-Badri said, it’s too soon to talk about OPEC adjusting its policy on output. “It will take another 4-5 months [before the cartel’s ministers meet again at its headquarters in Vienna], and we will not see some concrete efforts before the end of the first half of the year due to the reason that we will see how the market behaves at the end of the first half of 2015.”

Al-Badri acknowledged that some of OPEC’s 12 members, including poorer members of the cartel such as Venezuela and Iran, questioned the group’s decision not to cut production at its most recent meeting in November. But he insisted that the vote at the meeting was unanimous.

“It was a collective decision," he said. “Everybody participated in the decision, there are some remarks and some reservation, but at the end of the day all the ministers agreed to this.”

By Andy Tully of Oilprice.com

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  • Allen Schnurr on January 28 2015 said:
    I saw the video about gas pricing prices rising providing that is the case I think it's a rip off to the general public when money is tight to begin with I could never be a supporter of anything like that if prices stay down then I would support otherwise No
  • Paul on January 28 2015 said:
    As high as $200/barrel are you kidding me? Even if OPEC decides to limit production or stop it completely the glut of oil will keep prices in the neighbourhood of $65-75/barrel at best and not for another year. This flooded market both with cash poor junior oil companies defaulting on debts, combined with soft demand will keep crude prices low and will only increase prices to a respectable true valuation...for once. Yeah $200/barrel... this is worse than the Huffington Post.
  • Matt Biddick on January 29 2015 said:
    Demand has gone up by 9 million barrels per day in the last 6 six years. That's 1.5 mmbpd avg EACH year. And that includes the so-called global recession, where the demand curve is actually the steepest. Demand is going to keep increasing and it won't be met by oil prices in the $40's, or even $60's. If it weren't for American companies figuring out how to get oil out of source rocks, we'd have oil at $200 right now.
  • Ronald Cole on February 02 2015 said:
    The supply of oil that's being sold in the open market at current prices comes from both shale producers and conventional producers. The difference is shale producers do not have long term reserves. Oil shale wells have immediate flush periods of oil production and then dwindle to practically nothing. Possible life of a shale well might be around five years. Saudi Arabia's oil production comes from conventional wells that have reserves that can be drilled for years, oftentimes up to 40-50 years. So, when the open market forces both oil producers to sell their oil so dirt cheap, once the shale drillers have sold their oil, there isn't any more. But, the conventional drillers will continue to have their supply for years.

    Two hundred dollar oil is highly possible and most likely probable when the shale oil drillers are cleaned out and the only source of oil comes from OPEC controlled oil sources.

    Additionally, the political unrest in the middle east is a wild card. Don't expect the political climate to stabilize any time soon.

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