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Near Term Oil Prices Can’t Go Much Higher

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OPEC Chief Warns Against Oil Price Panic

OPEC Secretary-General Abdalla Salem el-Badri says he doesn’t expect demand for the cartel’s oil or its production levels to change in the coming year, and he is urging member states not to be alarmed by oil’s current low prices.

“Don’t panic,” el-Badri said Oct. 29 at an impromptu news conference in London, where he was attending a conference. “I am sure the market will balance itself.”

The concern, if not the panic, already is present. The price of the global petroleum benchmark, Brent crude, plunged a little more than $87 a barrel the day he made those comments -- nearly $30 less than it was in June, a loss of about one-fourth of its value.

Related: OPEC & Russia’s Vulnerability and America’s Ingenuity

Al-Badri shrugged off this loss, saying he wasn’t worried because price fluctuations don’t reflect “the fundamentals” of the oil market. “Demand is still growing, supply is also growing. OPEC is reviewing the situation,” he said. “There is nothing wrong with the market.”

Current production limits for OPEC members probably will stay in place in 2015, he said, adding that the cartel isn’t likely to lower that cap at its next meeting in Vienna on Nov. 27. He also said he expects individual members won’t produce significantly below that cap in the coming year.

El-Badri said the expected demand for OPEC’s oil in 2015 also will be about the same as in 2014: between 29.5 million and 30 million barrels of oil per day.

One reason why OPEC members shouldn’t panic, el-Badri said, is that persistent lower prices hurt the cartel’s members far less than they affect companies extracting shale oil with new, costly technologies such as horizontal drilling and hydraulic fracturing, or fracking. As a result, he said, OPEC has a competitive edge over most of the overall oil market.

“If prices stay at $85, we will see a lot of investment, a lot of oil, going out of the market," el-Badri said. “About 65 percent of the producers, they have high costs. Not OPEC."

Related: Saudi Arabia: Producing More Crude, Selling Less?

Some oil executives have challenged that view. Marianne Kah, the chief economist of ConocoPhillips, said the price of oil would need to plummet to $50 a barrel “to really harm [shale] oil production.” Bob Dudley, BP’s CEO, said the cost of using the new extraction techniques has come down recently, and noted that the biggest victim of low prices are Russian oil companies, which have been caught in the middle of a dispute with Moscow and the West over the Ukraine crisis.

The European Union and the United States have imposed sanctions on Russia and its oil sector over Moscow’s suspected meddling in Ukraine’s internal affairs. While they’ve had an effect, Dudley said, the sanctions alone aren’t a concern to Russia.

“It is the lower oil price that puts more pressure on Russia than the sanctions themselves,” Dudley said.

By Andy Tully of Oilprice.com

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  • Joey V on November 02 2014 said:
    You cannot win races today with tomorrow's foals. New oil has been extracted with CHEAP money and is competing with shallow resovoir fields. You can scream all you wish about the price of new oil extraction, but I've been to ND and N.Tx. They are pulling millions of gallons of sweet crude out of the ground and don't have to load a GD VLCC!!!! We can stop every rig this side of the Atlantic for the next 20 years!
    Oil is headed south and OPEC can kiss my red white and blue ass. We drilled wells for a buck ten and will pump it dry, until Ali screams bloody murder. We have a good, ten to twelve years of high velocity volume out of these new wells and soon it will be on to the new Mexican projects, oh and any day before the rest of the Canadain digs go to pipeline. North America is going to shut down the rest of the consolidated producers faster than you can say $80 oil. Pipelines and train tracks, God bless the USA.
    In the mean time, new tech will far surpass extraction rates and you can...
  • Synapsid on October 31 2014 said:
    Will those who post at OilPrice.com please (oh please) stop saying "new, costly technologies such as horizontal drilling and hydraulic fracturing" and words to the same effect?

    Neither technology is new. Horizontal drilling has been employed for decades and hydraulic fracturing for much longer. What was new, that got the shale-gas and shale-oil (LTO) exploitation going big time, was an oil price around $100 a barrel for a couple of years in a row. These technologies are indeed costly to employ and it took costly oil to make their use profitable on a large scale.

    It takes expensive oil to make horizontal drilling and fracking usable economically. The current use of those technologies is a result of expensive oil, not new technology.

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