Supply disruptions and the lag time associated with OPEC’s ability to increase production could send oil prices to $100 a barrel, but this isn’t good news for the economy and the oil industry, Total’s chief executive Patrick Pouyanne told Bloomberg in an interview.
Disruptions in supply coming from Iran, Venezuela, and Libya give strong support to oil prices and they may head into triple-digit territory, according to Pouyanne, who reminded Bloomberg television that he predicted this development as early as in June this year.
On the other hand, although OPEC has pledged to boost production, output hasn’t increased so much, Pouyanne told Bloomberg.
Saudi Arabia has capacity of 11 million bpd, but boosting production from current levels would need time, because they have to mobilize rigs.
“You don’t push a button and then oil flows. It’s more complex than that,” Pouyanne said.
Total’s chief executive believes that $100 oil is a real possibility, but he is not especially thrilled with it.
“I’m not sure it’s good news, by the way, for the world economy, even for the oil industry, because you know, when price goes too high then you open the door to your competitors and competition and demand will fall again,” the manager said.
Related: $80 Oil: Increased Investment Or Demand Destruction?
Pouyanne is joining a growing number of industry executives and analysts who have started to predict that $100 is now a real possibility, with Iranian sanctions expected to remove more than 1 million bpd from the oil market, on top of the likelihood that Venezuela’s production will drop further and Libya’s supply will face further interruptions thanks to security troubles.
In a tightening oil market, this past weekend an OPEC/non-OPEC panel congratulated itself on the job well done so far, and said it was satisfied with the “overall healthy balance between supply and demand,” snubbing calls by U.S. President Donald Trump to lower oil prices.
The wait-and-see approach by OPEC and Russia sent oil prices surging to their highest in four years, and major oil traders started to call $100 oil, saying it could be here soon amid higher market and geopolitical risks.
By Tsvetana Paraskova for Oilprice.com
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Moreover, an oil price of $100 is good for the global economy in that it stimulates global oil investments, it also enables oil-producing countries to get a reasonable revenue and thus spending more on exploration and expanding their oil production capacity to meet future demand and it also enables the global oil industry to balance its books and start new projects.
Furthermore, there will be no outage from Iran as US sanctions are doomed to fail and Iran will not lose a single barrel of its oil exports.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
anyone who has worked in the industry, not someone who has made specious speculative assumptions, but has been boots on the ground, knows $100 oil is quite reasonably priced. the exorbitant capital investment necessary to deliver energy across the globe requires a fair return on investment so as to insure stable supply.
oil is what currently supports 7 billion global denizens in their quest for daily survival. one day it may be obsolete, but today is not that day. without oil, the oil and gas industry goes kaput, and with it the green's dreams of an electric society; something has to spin to those generators. maybe hydrogen will spin future generators, maybe it won't. one thing is certain, energy providers cannot survive producing below cost.
the last 3-4 years has seen just that. there have been no serious technological gains in the oil industry; it's not a highly technical endeavor. while the systems are complex, the basic design has been around for one hundred years. what was spuriously touted as technological gains was in actuality service companies buying work. it happens every time the industry takes a dump. the industy is labor, and capital intensive. service companies slash wages and workforce to survive when funding streams are slashed just as maintenance, operations, capital projects, and r&d budgets are slashed. expect to see more supply disruptions as a result of slashed maintenance budgets, and increased trunaround times due to slashed operations budgets.
$75-$80 oil is the real breakeven point. below that and the stage is being set for future $150 (or higher) oil. pray the global economy never takes off or the days of $100 oil will be seen as the halcyon days in comparison.