$70 TO $80 OIL BY END OF 2015
Exclusive: Arab OPEC sources see oil back above $70 by end-2015
reuters.com 4:52am EST By Rania El Gamal
ABU DHABI (Reuters) - Arab OPEC producers expect global oil prices to rebound to between $70 and $80 a barrel by the end of next year as a global economic recovery revives demand, OPEC delegates said this week in the first indication of where the group expects oil markets to stabilize in the medium term.
The delegates, some of which are from core Gulf OPEC producing countries, said they may not see - and some may not even welcome now - a return to $100 any time soon. Once deemed a “fair” price by many major producers, $100 a barrel crude is encouraging too much new production from high cost producers outside the exporting group, some sources say.
But they believe that once the breakneck growth of high cost producers such as U.S. shale patch slows and lower prices begin to stimulate demand, oil prices could begin finding a new equilibrium by the end of 2015 – even in the absence of any production cuts by OPEC, something that has been repeatedly ruled out.
"The general thinking is that prices can’t collapse, prices can touch $60 or a bit lower for some months then come back to an acceptable level which is $80 a barrel, but probably after eight months to a year," one Gulf oil source told Reuters.
A separate Gulf OPEC source said: "We have to wait and see. We don't see 100 dollars for next year, unless there is a sudden supply disruption. But average of 70-80 dollars for next year – yes.”
The comments are among the first to indicate how big producers see oil markets playing out next year, after the current slump that has almost halved prices since June. Global benchmark Brent closed at around $60 a barrel on Monday.
Their internal view on the market outlook will provide welcome insight to oil company executives, analysts and traders, who were caught out by what was seen by some as a shift in Saudi policy two months ago and have struggled since then to understand how and when the market will find its feet.
NOT AGAIN
For the past several months, Saudi officials have been making clear that the Kingdom’s oft-repeated mantra that $100 a barrel crude is a “fair” price for crude had been set aside, at least for the foreseeable future. At the weekend, Saudi Oil Minister Ali al-Naimi was blunt when asked if the world would ever again see triple-digit oil prices: “We may not.”
Saudi Arabia, the world’s biggest exporter – and its close Gulf allies within the Organization of the Petroleum Exporting Countries (OPEC) – say it’s time for others, whether that is countries like major exporter Russia or U.S. shale drillers, to slow down; OPEC can no longer slash output, ceding market share, to spare them a downturn.
As Naimi told the Middle East Economic Survey (MEES) in an interview this weekend: “It is not in the interest of OPEC producers to cut their production, whatever the price is.”
Without OPEC to defend prices, oil entered a free-fall, but most of OPEC’s members are holding fast.
At this point, intervening in the market would simply invite new rivals to carry on pumping crude, eroding OPEC’s market share without any guarantee of a sustained price recovery, another Arab oil source told Reuters on the sidelines of a meeting in Abu Dhabi of the Organization of the Arab Petroleum Exporting Countries (OAPEC).
"Every time prices fall, we would be asked to cut," the source said.
The second Gulf OPEC source reiterated that OPEC would not cut alone. Non-OPEC producers such as Russia, Mexico, Kazakhstan and "anyone producing more than one million barrels per day" should also cut or at least freeze their output if they wanted a stable market and better prices, the Gulf OPEC source said.
NO PRICE TARGET
To be sure, there is no suggestion that OPEC is targeting a specific price, or would want to do so. The group hasn’t had a formal price goal in about a decade, and Saudi Arabia has long maintained that it is only seeking price stability, not a set level.
But it offers a convenient metric at a time when traders are struggling to figure out where and when markets will settle down.
Asked about market signals OPEC is looking for to decide on whether the market is stabilizing or not, irrespective of the price, Naimi said: "The signals need time, one year, two years, three years. There is not one signal that we look to and say that's it... but for sure those who are the most efficient producers are the one who would rule the market in the future."
Iraqi oil minister Adel Abdel Mehdi told Reuters in an interview on Monday he thought prices would stabilize now at about $60 a barrel but could rise to over $70 by mid-next year.
"I believe that market has started to stabilize itself now," Falah al-Amiri, head of Iraq state oil marketing SOMO told Reuters in Abu Dhabi.
"The future for next year, I don't think there would be much optimism in the market that the price would go to $80 or above. But I don't even think prices would reach $80," said Amiri, citing a resilient shale oil production to current prices.
(Editing by William Maclean, Will Hardy and Jonathan Leff)
Views: 1333
Replies to This Discussion
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Permalink Reply by Bill on -
The law of supply and demand will have final say. OPEC will learn that they really cannot drink it.
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Permalink Reply by Joe Aldridge on
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As I said when all of this started they are scared to death that the US will allow exporting of oil. So they see the shale as a killer of their market share. Therefore they are going to try to kill the shale drilling and production. That's what it really comes down to.
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Permalink Reply by P.G. on
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Yep, fracking is bad for the Saudi's.
They will try to keep the price of oil at the point where fracking just isn't worth doing.
The US will be forced back into becoming dependent upon imports again.I wonder how many jobs in our oil industry this is going to destroy?
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Permalink Reply by Skip Peel - Mineral Consultant on
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Not only does production from unconventional reservoirs provide energy companies with an enhanced capability to adjust production to demand, it also allows many of them to expand or contract drilling in response to changes in the commodity price. Although it gets little seeming notice from energy reporters who prefer to play to the sensational even when it doesn't make sense, all plays have variations in rock quality which is categorized as core, tier one, tier two and tier three areas. In a mature resource play, development wells can be drilled in core and/or tier one rock at quite low crude prices. When the price is sufficiently high it is profitable to drill tier two and tier three. When the price is not, operators simply stop drilling that rock while they continue to drill in their areas with better economics. No variation in price, no matter how high or how low, will change this dynamic and the cause of the price variation is of no import. The industry has always been cyclical.
The evolution of domestic resource plays is ongoing and there are some companies more vulnerable then others but it is just such down cycles that will realign the industry to be even more flexible and resistant to price swings. In plays where smaller operators do not have core or tier one positions with the economics to withstand sustained low prices, they will be forced to sell or be acquired by operators that do have core and tier one positions. In resource plays in early stage development, the TMS being a good example, operators may have to pad drill their best rock and simply write off the capital sunk in acquiring some of their leasehold. If the companies are not over leveraged and can maintain cash flow it is possible they can survive until prices rebound. If the can not, they will sell or by acquired and the successor company will resume the leasing and lease capture phase when the economics are right.
The Saudis know this even if it may be obscured for many by all the articles touting conspiracy theories. It is certainly possible that US imports will increase as domestic production declines through a period of reduce drilling of high decline shale wells however the level of imports will never go back to what it was just ten years ago. And any additional crude imports in that short term are more likely to come from Canada then any where else. Certainly not SA. The Sauds have nothing to fear in the short term, they hold the cards. I suspect that they only fear a day far in the future when production from unconventional reservoirs is common in countries around the globe.
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Permalink Reply by P.G. on
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Does it really matter who the US imports from?
I mean if we didn't import Canada's oil, they'd be dumping it into some other market in the world wouldn't they? And sooner or later that would impact the Saudi's...
And can Canada produce oil profitably at sub fracking break even prices?
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Permalink Reply by P.G. on
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And what's to stop the Saudi's from cycling prices once they pretty much shut down the frackers to stay a step ahead of them.
I mean if they shut down the fracking, then drop supplies and prices go way up, they could cycle prices back down by flooding the market by the time the fracker's started selling their fracked oil...
How many cycles could the most well capitalized frackers endure before they started hurting?What would a cat and mouse game like that do for world economic stability?
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Permalink Reply by Skip Peel - Mineral Consultant on
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My point is that SA currently can only impact a certain sector of the energy companies focused on unconventional reservoirs. They can not "shut down the frackers" in regard to EOG and WLL in the Bakken or EOG in the Eagle Ford. IMO they are capable of shutting down the marginal producers in those plays however that only speeds the process of the predominate operators acquiring that tier two and three rock.
SA doesn't want to cycle prices. They want stable prices. The cycles are driven as much by demand as they are by supply. Economic growth in the future will have as much to do with improving crude prices as will marginal declines in supply. Americans seem to miss the fact that many countries have not recovered from the recent economic recession and may not do so for a few more years. Global demand is down significantly.
All the conspiracy theories simply miss, if not deliberately ignore, the basic facts of global crude supply and demand. There are obvious and logical reasons for the Sauds to do what they are doing. I think officers at any of the Seven Sisters would be taking the exact same approach if they directed Saudi Aramco.
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Permalink Reply by Joe Aldridge on
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I think they "cycled the prices" in the mid 80's and then again in the mid 90's. So it looks like they "cycle the prices" every time there is competition. That's what you can do when you sit on a sea of oil. You can control and dictate the market share and who has what share.
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Permalink Reply by tc on
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Also a lot of the price cycles are caused by the US financial markets. Easy FED money causes speculators to play in the crude market and disrupt the supply/demand pricing, i.e. 2008 and 2013/14. Also world crude oil is priced in US dollars so the rise and fall of the US dollar also causes crude oil prices to change.
The Saudi have over $1 trillion invested in world stocks/bonds/companies and they want a stable world economy.
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Permalink Reply by Steve P on
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I suspect that there is also a tad of geo-politics in all of this, whether by design or simply cause and effect. Not suggesting a conspiracy, but isn't it convenient (for the US, and for SA) that the Ruble has cratered and Russia's ability to mess around with the former states in the USSR, the financial stability of Venezuela is shaky, and the ability of Iran to invest in their nuclear program and destabilize the Middle East are all tied to the lower price of crude.
As in most economic issues, there are winners and losers, both here in the US and abroad. Skip is correct on the global economy and global demand for crude. This lower price may help that global economy, but at the expense of the shale plays in the US (and elsewhere), and the OPEC countries. It will hurt Russia and Venezuela far more than it will hurt the overall US economy. But some regions in the US will be hurt far more than the overall US economy. I am old enough to remember the collapse of the price of crude in the 80's, and it had a huge negative impact on Louisiana, and my own business. Hopefully we can avoid that this time.
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Current low oil prices equal $125 BILLION tax break for Americans and most of the benefit will go to the working poor and middle class.
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Permalink Reply by Joe Aldridge on
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TC,
I think this lower price for energy will make the US economy take off in the coming year. It should be an unbelievable year for everyone except the oil and gas patch. Guess who will get the credit for this turn around?
My personal feeling is the low price for gas over the past five years has kept the country from going into a very deep depression. Now with the low price of oil this will turn the economy on and its going to be an unbelievable 2015.
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