Business | Oil & Gas
Low prices likely to hurt future investments
Crude oil's fall in recent months will help support a sagging world economy but current prices do not reflect fundamentals and need to be at a level that encourages investment, two Opec producers said in New Delhi on Wednesday.
- Reuters
- Published: 23:51 January 15, 2009
New Delhi: Crude oil's fall in recent months will help support a sagging world economy but current prices do not reflect fundamentals and need to be at a level that encourages investment, two Opec producers said in New Delhi on Wednesday.
The global financial crisis, the worst since the 1930s, has pushed much of the industrialised world into recession, causing oil demand to slump and crude prices to tumble by more than $100 (Dh367) from its record peak above $147 a barrel last July.
Saudi Oil Minister Ali Al Naimi told delegates at the Petrotech conference oil prices should be stable and more predictable, and added he was especially committed to the needs of growing Asian markets.
Qatar's oil minister Abdullah Al Attiyah suggested a target price of $70, which is about 80 per cent higher than the current level, to encourage investment.
"Stability means oil prices maintained at a level that encourages investment, helping create a climate conducive for the development of all viable energy sources," Al Naimi said.
On Tuesday, Al Naimi said on the sidelines of the conference that the world's top exporter would cut output next month to below its Opec target and was prepared to go even further to arrest the fall in prices.
Talks of production cuts and cold weather in the United States helped oil rise three per cent towards $39 a barrel on Wednesday although it later slipped back below $38 after news of worse-than-expected US retail sales figures that depressed stock markets and hit the dollar.
"The price of oil.. has declined in recent months by more than 70 per cent since reaching their highest level in July - a drop that will play a major role in aiding economic recovery," Al Naimi said.
Qatar's Al Attiyah said $70 a barrel was the right price for oil to keep companies and producers investing in new resources.
"Low oil prices will reflect a freeze in investment in new resources. When growth comes back, we will have another shock, as resources will not be there to meet demand," he said.
Al Attiyah said he did not favour very high prices either. "Oil prices over $100 are not logical. I also don't appreciate low oil prices."
Opec decided to cut supply by 2 million barrels per day (bpd) at meetings in September and October. In December it agreed to lower output by a further 2.2 million bpd from January 1.
Al Naimi said oil producers wanted reasonable returns without hurting economic growth.
"Stability also is defined as a level providing a reasonable return to producing nations, and one that does not harm the global economy," Al Naimi said.
He said a meeting of oil producers and consumers at Jeddah in June last year had helped moderate oil prices to an extent.
"This collaboration, combined with the kingdom's moderate price policy, aided price moderation for a short period," Al Naimi said. "However, because of the current worldwide economic and financial downturn, prices decelerated to levels not reflective again of market fundamentals."
Angola's deputy oil minister Anibal Octavio Teixeira da Silva said nobody was happy with the current oil prices. "That is why Opec is doing cuts and cuts to see [if] prices will improve," he told Reuters on the sidelines of the conference.
He said Angola would cut output to 1.65 million bpd by early March from 1.8 bpd in line with cuts agreed by Opec.
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