Qatar warns of crude supply shock

Dubai: The world faces a crude supply shock if oil prices remain below $70 (Dh257.11) per barrel, Qatar's Energy Minister Abdullah Bin Hamad Al Attiyah said on Wednesday arguing that lower prices would discourage investment in new capacity.

His comments at a petrochemicals industry conference in Dubai echo recent statements by Saudi Arabia's King Abdullah Bin Abdul Aziz and Oil Minister Ali Al Nuaimi, who identified $75 as a fair price for oil.

Global oil prices are one-third of what they were in July amid weakening demand due to the world economic slowdown.

Ministers of the Organisation of Petroleum Exporting Countries (Opec) meeting in Algeria on December 17 will decide a production cut, Al Attiyah said, without revealing by how much.

"For sure, we will cut in Oran (Algeria)," the minister told reporters when asked whether Opec, which supplies 40 per cent of the world's oil, will reduce production.

The group postponed this decision at its November 29 meeting in Cairo.

Al Attiyah said Opec is studying the supply and demand situation before deciding on the size of the cut.

A price of $70 per barrel is needed "to avoid any (supply) shock in the future," he said, explaining that this price level should be sufficient to encourage companies and oil producers to continue investing in capacity expansion projects. "Below $70, it will be non-economical to invest in the hydrocarbon sector," Al Attiyah told the Gulf Petrochemical and Chemical Association (GPCA) forum. "Today there is no cheap," he added.

Now that the price has fallen dramatically to below $50, this could discourage investment in finding new deposits and extracting them from difficult places.

Countries and oil companies may postpone many upstream projects if they do not get a return on their investments, he said.

"So this is our concern that when the economic crisis is over and demand starts (to pick up) again, then the world will face a big shortage of supply," Al Attiyah said.

However, Al Attiyah said he is not working to achieve the $70 target, insisting that oil prices are market-driven and the high prices earlier this year were due to speculative futures trading in the commodities markets by financial institutions.