Industry Experts Expect Oil Between $50 and $60
The optimism in oil markets may be short-lived after the world’s top industry executives warned that despite an agreement to cut oil production, prices are likely to be stuck between $50.00 and $60.00 a barrel for a long time.
This stark reminder to energy bulls came from executives gathered at the annual Oil and Money conference in London this week.
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What does this price range mean for oil companies and for those countries that export this commodity? It’ll definitely keep budgets for the largest oil producers, including Middle Eastern powers and non-OPEC producers such as Russia and Canada, under pressure.
This assessment is also a warning for investors in energy companies that they may not see the level of profitability return, which was the hallmark of this decade.
The decision to cut oil output by members of the Organization of Petroleum Exporting Countries (OPEC) last month helped push prices above $50.00 a barrel, but some observers say a sustained recovery in oil prices won’t be possible, as it will revive shale oil production from fields previously rendered unprofitable by the two-year slump in crude.
“This upward pressure on the prices would stimulate some high-cost producers to increase their production, such as the U.S. shale oil,” Fatih Birol, executive director of the International Energy Agency, said Tuesday in an interview at the conference venue in London. “The price level around $60 would give a strong impetus to the bulk of the current U.S. shale industry.” (Source: “Oil Seen Stuck in $50 to $60 Range as Shale Blunts OPEC Action,” Bloomberg, October 18, 2016.)
There is another risk to bullish assessment for oil outlook. Some analysts believe that the oil glut is so severe that oil-producing nations won’t be able to maintain their production cuts, especially at a time when political rivalries between the top two oil producers, Saudi Arabia and Iran, are so grave.
On the other hand, oil “super majors” Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX) and BP plc (ADR) (NYSE:BP) may not be able to see the level of profits they earned during the oil boom that ended in 2014. They all have reported a massive plunge in their profits in the second quarter, while some smaller producers have been forced out of business altogether.
