Saudi Arabia says oil at US$50-$60/barrel ensures global supply

PUBLISHED : Wednesday, 19 October, 2016, 2:22am
UPDATED : Wednesday, 19 October, 2016, 2:22am

Officials from Saudi Arabia and Kuwait, key protagonists in shaping OPEC policy, said oil at US$50 to $60 a barrel would ensure adequate global supply, setting out a potential price band for the producer club before its meeting in Vienna next month.

“A $50, $60 oil price -- absent a supply accident -- is sufficient to develop the low-cost resources to provide increases that will be necessary over the next three to four years,” Andrew Gould, board director at state-owned giant Saudi Arabian Oil Co., said Tuesday in London.

His comments, at the annual Oil & Money conference in London, suggest Riyadh sees relatively little upside to prices in the short term. While benchmark Brent crude is up about 13 per cent since the Organization of Petroleum Exporting Countries reached a deal September 28 to manage supply, it’s still trading at half its level of mid-2014, at around $52 a barrel.

Projections for $50 to $60 oil over the next 15 months are “logical” and “acceptable,” Kuwait’s acting Oil Minister Anas Al-Saleh said in a report from the state-run Kuwait News Agency.

“Unless there are new developments in the major oil-producing countries, this scenario will be most likely,” he said.

Saudi Arabia and Kuwait were among oil producers to hold output at or near all-time highs in September as OPEC continued to defend market share against rival suppliers including the US. While many high-cost shale wells were shut in after oil’s collapse, some North American drillers are starting to bring back rigs.

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A sustained rally will depend on OPEC’s ability to agree on individual quotas when it meets on November 30. Should the group succeed, a further price increase is likely to spur shale output, according to Fatih Birol, executive director of the International Energy Agency, who said he agrees that $50 to $60 is enough to meet short-term supply needs until 2020.

“This upward pressure on the prices would stimulate some high-cost producers to increase their production such as the US shale oil,” Birol said Tuesday before the conference. “The price level around $60 would give a strong impetus to the bulk of the current US shale industry.”

Others are looking for a higher price to proceed with longer-term projects. Hess Corp. Chief Executive Officer John Hess said Tuesday that low prices have been “devastating” and producers need $60 to $80 a barrel for “long-cycle” developments. A price of $50 would hold shale production flat, he said at the conference.