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IEA Chief: High Oil Prices Could Harm Producers In The Long Term

Oil rigs

Oil prices higher than the current levels may not be good news for major oil producers in the medium and long term, as consumers will seek alternatives to refined oil products in energy and passenger cars, leading to a decline in oil consumption, Fatih Birol, Executive Director of the International Energy Agency (IEA), said in an interview with India’s ET Now.

Answering a question about the 56-percent rally in Brent oil prices in 12 months, Birol said that the market is currently driven by fundamentals—very strong demand growth in 2017 and so far in 2018, plus a significant drop in Venezuela’s oil production. Some geopolitical developments on top of the tight market could further boost oil prices in the coming months, the IEA’s chief told ET Now.

Most recently, the U.S. withdrawal from the Iran nuclear deal and the renewal of sanctions on Tehran drove oil prices higher.

Commenting on reports that OPEC’s largest producer Saudi Arabia is aiming for prices at $80 and even $100, Birol told ET Now:

“There are several major countries that may want the prices to be higher still but…I can say that prices higher than the existing level may not be good news for the producers themselves.”

Higher prices will further boost U.S. shale production and encourage deep water in Brazil and Mexico as well, according to Birol.

“In my view, higher prices are not good news for oil importing countries like India but strategically, they are not good news for major oil producers as well in the medium and longer term,” the IEA executive director said.

Asked about the price of oil in the next 12 to 24 months, Birol said that he expects a lot of volatility and “higher prices are not good for the importers, exporters and also for the global economy.”

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on May 10 2018 said:
    If the Executive Director of the IEA thinks that prices higher than the existing level may not be good news for the producers themselves, then he should tell us what price could the global economy tolerate. It is no good pontificating on oil prices in an ambiguous fashion.

    A sound economic principle is for oil producers to seek to maximize the return on their finite assets to whatever level the global economy allows them. If the prices are too high, the global economy will tell them in no uncertain terms.

    The majority of the OPEC producers need an oil price higher than $100 a barrel to balance their budgets.

    I believe that a fair price for oil ranges from $100-$130 a barrel. Such a price range is good for the global economy as it invigorates the three biggest chunks of the global economy, namely, global investments, the economies of the oil-producing nations and the global oil industry.

    US shale oil producers will continue to produce even at a loss just to prevent themselves from going bankrupt.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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