Market needs $70-80/bl to balance: former Saudi adviser – Crude Oil Dollar 70-80-bl balance
Crude Oil Dollar 70-80-bl balance
London, (Argus) — A stable oil price of around $60/bl over the next three years, rising gradually over the next 10 years to $70-80/bl, will cause supply and demand to be roughly balanced, said World Energy Council vice chairman and former advisor at Saudi Arabia’s oil ministry, Ibrahim al-Muhanna.Crude Oil Dollar 70-80-bl balance
Al-Muhanna recently retired from his post at the Saudi oil ministry.
Speaking today at the Organization of Arab Petroleum Exporting Countries’ 24th Forum on Fundamentals of the Oil and Gas Industry in Kuwait, he said an oil price of $70-80/bl was “ideal in terms of the increasing production cost”, as it would result in higher investments in the oil and energy sectors thus ensuring market balance.Crude Oil Dollar 70-80-bl balance
Al-Muhanna said annual demand growth of “anywhere from 1mn-1.5mn b/d” would boost global demand from its current level by 10mn b/d to 108mn b/d. Crude Oil Dollar 70-80-bl balance
The most important factor promoting this would be global economic growth of 3-4pc, with an even higher rate in developing countries, he said.Crude Oil Dollar 70-80-bl balance
Al-Muhanna downplayed the importance of US shale oil, pointing out that it “is not a primary source of energy”, and contributes some 5pc of global oil output.
Even if prices were to rise to $100/bl, shale output would rise from its current level of 4.5mn b/d to 10mn b/d over the coming decade, comprising “only 10pc of total oil output,” he said.Crude Oil Dollar 70-80-bl balance
“The annual shale oil growth, if achieved, will not meet the annual global oil demand growth,” al-Muhanna said. Crude Oil Dollar 70-80-bl balance
But he acknowledged “shale oil unexpectedly changed the supply-demand balance equation” in 2013 and 2014.
“All oil sources can cause such a change from time to time, leading to a temporary price shock, lasting for one to three years.”
The former Saudi official said “future volatility in oil supply is all but a certainty in the near term, which makes the need for an anchor group of oil producers all the more critical.”
This is a reference to continued co-operation between Opec producers and some non-Opec producers, chiefly Russia, to restrain output to reduce a supply overhang and balance the market. Crude Oil Dollar 70-80-bl balance
Al-Muhanna said US President Donald Trump “is seen as a friend to the domestic oil, gas and coal industries” and intends to reconsider the Paris agreement on climate change.
But it is too early to assess the impact on oil and the economy of the economic policies, including those relating to oil, that the Trump administration is trying to pass through Congress, he said. Crude Oil Dollar 70-80-bl balance
“It may be several months, or perhaps until the year’s end, before we can judge those policies and explore their positive or negative implications for the oil industry, but the actions of the new Trump administration should be closely monitored for their impact on international oil trade,” said al-Muhanna.
Should the US opt for protectionism, “this could negatively affect world economic growth and lead to a major global economic crisis, reducing or slowing down oil demand growth”, he said.
The import taxes the Trump administration seeks to impose would negatively affect US oil imports of around 2mn b/d from the Mideast Gulf, said al-Muhanna.
But it remains unclear how or if they will be implemented, and that in the event that they are implemented, this will be unlikely to occur in the manner that “Trump wishes.”