Oil price slump a ‘wake-up call’: La­garde

Oil ma­jors see low prices per­sist­ing for months ahead


DOHA: The head of the In­ter­na­tional Mone­tary Fund said yes­ter­day that the global slump in oil prices was a “splen­did wake-up call” for en­ergy-pro­duc­ing coun­tries to re­struc­ture their economies. Speak­ing at Ge­orge­town University in ma­jor gas pro­ducer Qatar, Chris­tine La­garde said those coun­tries re­liant on oil and gas rev­enues had to change to main­tain their eco­nomic po­si­tion.

“I would say the cur­rent sit­u­a­tion is a splen­did wake-up call to re­struc­ture,” she said. “In the face of this new sit­u­a­tion, trig­gered by the price of the oil which we see as not a short-term phe­nom­e­non but a longer-term phe­nom­e­non... mea­sures have to be taken.” La­garde said those mea­sures in­cluded find­ing new sources of rev­enue and tax, and keep­ing a tight control on spend­ing.

Although not specif­i­cally men­tion­ing any coun­tries, she also en­cour­aged more pri­vate sec­tor in­volve­ment. “How do you wel­come the pri­vate sec­tor, how do you make the en­vi­ron­ment more business friendly so that the pri­vate sec­tor feels wel­come and en­cour­aged and takes the ba­ton from the pub­lic sec­tor,” she said. “So, it’s a whole se­ries of mea­sures that need to be con­sid­ered.”

La­garde de­liv­ered a sim­i­lar mes­sage to min­is­ters of the six Gulf Co­op­er­a­tion Coun­cil states — Bahrain, Kuwait, Oman, Saudi Ara­bia and the United Arab Emi­rates as well as Qatar, on Sun­day.

The IMF projects that growth in the GCC states will fall from 3.2 per­cent this year to 2.7 per­cent in 2016. It fore­casts that ex­port rev­enues will be $275 bil­lion (256 bil­lion euros) lower this year than in 2014. The price of oil has dropped by more than half since the be­gin­ning of last year.

Oil glut to per­sisit

The global oil glut is likely to take longer than ex­pected to clear and may de­press oil prices for many more months if not years de­spite steep in­vest­ment cuts and project can­cel­la­tions around the world, ex­ec­u­tives from oil ma­jors said yes­ter­day. The views from the top ranks of Exxon Mo­bil, BP and To­tal were given at an in­dus­try con­fer­ence in Abu Dhabi as key of­fi­cials from the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries (OPEC) said they ex­pect bet­ter prices in 2016. The dis­cord in views comes as most global ma­jors are slash­ing their bud­gets and in­vest­ments with the aim to be able to gen­er­ate cash­flows with prices as low as $60 per bar­rel.

And while ma­jor pro­duc­ing na­tions are also re­duc­ing spend­ing, they are of­ten fac­ing much tougher choices to keep gov­ern­ments pop­u­lar. “I’m not sure we will exit from low prices be­fore many months,” To­tal’s chief ex­ec­u­tive Pa­trick Pouyanne told the con­fer­ence.

Oil prices more than halved in the past 18 months be­cause of a global oil glut which arose on the back of a US shale oil boom and a de­ci­sion by OPEC not to cut out­put to fight for mar­ket share with higher cost pro­duc­ers.

BP’s and Exxon Mo­bil’s heads of ex­plo­ration and pro­duc­tion La­mar Mckey and Jack Wil­liams both said low oil prices would stay for a while and BP’s head of the Mid­dle East Michael Town­shend said the group saw oil fluc­tu­at­ing around $60 per bar­rel for the next 3 years.

The views are more pes­simistic than those of OPEC with sec­re­tary gen­eral Ab­dul­lah Al-Badri say­ing yes­ter­day he saw a pos­i­tive mo­men­tum for oil mar­kets build­ing in 2016. The glut is per­sist­ing even though oil ma­jors alone have cut their cap­i­tal in­vest­ments by a com­bined $22 bil­lion this year while scrap­ping some 80 projects, dou­ble the num­ber aban­doned in 2014, ac­cord­ing to Mckay.

Town­shend said he saw Iraq - a ma­jor source of ad­di­tional sup­ply over the past two years - un­likely to be adding to the glut next year. “It is dif­fi­cult to see a mas­sive ramp up in pro­duc­tion next year be­cause of the way the con­tracts are struc­tured,” he said re­fer­ring to on­go­ing talks with the gov­ern­ment of Iraq about lower in­vest­ment plans for next year to re­duce pay­backs to oil ma­jors and thus leave more money for the Iraqi bud­get.

But as the oil in­dus­try be­comes more ef­fi­cient it is quickly learn­ing how to re­cover more re­sources from ex­ist­ing fields. “The new re­al­ity is that giant fields will pro­duce for much longer,” said Mckay.

Wil­liams said his ex­am­ple of ris­ing ef­fi­cien­cies was the cost of well drilling in North Dakota - one of the key US states be­hind the shale boom - be­ing down 36 per­cent in the past four years while gen­er­at­ing higher pro­duc­tion. — Agen­cies

QINGDAO: A cus­tomer buy­ing fish at a food mar­ket in Qingdao, east­ern China’s Shan­dong prov­ince. China’s con­sumer price in­fla­tion fell to a five-month low in Oc­to­ber, the gov­ern­ment said yes­ter­day. — AFP (See page 23)

KUWAIT: Zain Group Vice Chair­man Bader Nasser Al-Kharafi with Mark Kawano and Ti­mothy Don­nelly.

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