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