Kuwait oil chief: Get used to low oil prices
Oil prices will stay at $64 per barrel for six or seven months unless OPEC changes its production policy or the global economy recovers, according to the chief executive of Kuwait's state-run oil company.
Ali Saleh Al-Omair, Kuwait's minister of oil and minister of state for the National Assembly speaks to journalists prior to the start of a meeting of the Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria, Thursday Nov. 27, 2014. According to the CEO of Kuwait’s state-run oil company, price of oil may fall at $64 per barrel till mid-2015.
AP Photo/Ronald Zak/File
The CEO of Kuwait’s state-run oil company says the price of oil won’t rise above $64 per barrel until at least mid-2015 unless either the global economy recovers or OPEC acts limits production.
Oil-producing nations can’t do much to stimulate economic growth, which has been sluggish, especially in China and Europe, which, along with a US shale boom, has caused the price to drop by nearly 40 percent since mid-June. Yet the cartel can affect the price of oil by balancing supply more evenly with demand.
Nevertheless, during its meeting in Vienna on Nov. 27, OPEC decided to keep production at 30 million barrels a day, a cap set nearly three years ago. The cartel, led by Saudi Arabia, its biggest and most influential member, swept aside pleas from less-wealthy nations such as Venezuela and Iran to cut production by at least 1 million barrels a day in an effort to return the price to about $100 per barrel.(Related: Oil Price Tumbles After OPEC Releases 2015 Forecast)
The reason, according to Iranian Oil Minister Bijan Namdar Zanageh, was to keep prices low enough and long enough to threaten the US shale-oil industry and restore OPEC’s market share in America. Shale extraction requires expensive methods such as fracking and horizontal drilling, and many observers say it isn’t profitable if the price of oil drops below $65 per barrel.
Such a strategy would take time, however, according to Nizar Al-Adsani, the CEO of the Kuwait Petroleum Corp. “Oil prices will stay around the current level of $65 for six or seven months until OPEC changes its production policy, or recovery in world economic growth becomes more clear, or a geopolitical tension arises,” he said Dec. 9 at a conference in Kuwait City.
In the meantime, oil wells in North America are producing at their fastest rate in over 30 years, adding to the global oil glut. That and the OPEC decision not to cut output has brought Europe’s benchmark Brent crude to below $70 per barrel for the first time in more than four-and-a-half years.
Many analysts say such news tends to accelerate the depression of oil prices. “When these things go lower, they tend to go much farther than people anticipated,” said one such analyst, Tariq Zahir at Tyche Capital Advisors in New York. “I definitely think we’re going to keep heading lower, everyone is trying to pick a bottom.” (Related: Why US Shale May Fizzle Rather Than Boom)
In fact, oil prices have dropped fully 15 percent in the two weeks since the Nov. 27 OPEC meeting.
As a result, on Dec. 5 the US financial services corporation Morgan Stanley expressed its pessimism about the market when it cut its outlook for Brent crude in 2015 to $70 per barrel, a drop of $28. And it warned that prices could fall as low as $43 per barrel in the coming year.
“Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015,” said one Morgan Stanley oil analyst, Adam Longson.
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