A prolonged period of low crude prices, such as those being experienced by the international oil market since the summer of 2014, is not good for anyone, according to OPEC Secretary General, Mohammad Sanusi Barkindo.
Higher oil prices means more profit for governments and oil companies and boosts investments in most countries. However, lower prices hampers these as well the ability to meet certain economic obligations.
Barkindo told delegates at the opening session of the 15th Ministerial Meeting of the International Energy Forum (IEF), in Algeria, recently that low oil prices are a concern for producers today and maylead to situations that are a concern for consumers tomorrow.
Barkindo, who alongside the Secretary General of the IEF, Dr Sun Xiansheng, and the Executive Director of the International Energy Agency (IEA) Dr Fatih Birol, said that against this background of low oil prices, “we need to ask ourselves: is the current environment putting the future at risk?
The OPEC Secretary General pointed out that since the last IEF Ministerial Meeting in May 2014, the market had undergone much upheaval and witnessed significant volatility.
He noted that between June 2014 and January 2016 the price of the OPEC Reference Basket had fallen by 80 per cent.
“It is the largest percentage fall in the five episodes of sharp price declines we have observed over the past three decades,” he stressed. “Although, since the start of this year, prices have mostly seen an upward trend, and the OPEC Reference Basket price now sits above $40 a barrel.”
Barkindo explained that the current cycle was supply-driven with most of the supply increases in recent years coming from generally high-cost non-OPEC production.
He lamented that global exploration and production spending fell by around 26 per cent in 2015, and a further 22 per cent drop was anticipated this year. “Combined, this equates to a loss of more than $300 billion. This will impact not only new projects coming on stream, but new discoveries too,” he added.
Barkindo said that with supply outpacing demand, the market had seen a global oil inventory build since mid-2014. “The difference to the five-year average in terms of total OECD commercial stocks remained very high at the end of August.
He said that to reverse the declines in investment and output, it was vital to see a rebalanced market with sustainable stability, so that the industry could deliver the necessary investments “for our energy future.”
“In this regard, it is vital to keep in mind the link between the marginal cost, the price and investments.”
Barkindo said that there were also many other ongoing and related challenges for oil markets, such as: the uncertain prospects for the global economy; excessive speculation and the role of financial markets; the impact of geopolitics; advances in technology and their impacts on exploration and production; and environmental and sustainable development concerns.
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