Anyone invested in oil hoping for a quick bounce back in prices (Russia, we’re looking at you) may want to look away now. Shell boss Ben van Beurden thinks the black stuff won’t fully recover this year, echoing recent predictions by other industry experts.
‘The market will remain volatile in 2015, if only because for now, Opec (the Organisation of the Petroleum Exporting Countries) shows no sign of wanting to resume its role as swing supplier,’ van Beurden is due to say at a conference tonight, according to the Telegraph.
Oil prices have plummeted as much as 60% since June, from more than $110 (£72) to as low as $45 earlier this month. A barrel of Brent Crude is currently selling for just under $56. Opec, effectively headed up by Saudi Arabia, exacerbated the rout in November, when it decided not to cut production in an effort to force more cost-intensive US frackers, which had caused much of the oversupply, out of business.
Van Beurden’s comments would fit with recent research from Citigroup, which predicted oil would sell for $57 by the end of 2015, but could fall as low as $20. He also supports the International Energy Agency’s view that a price recovery is ‘inevitable’.
‘For the longer term, I see no change to fundamental drivers of oil markets such as rising demand and the need for new supplies,’ he will say, while also warning, ‘supply will probably not keep pace with this growth,’ given current prices.
Oil companies are notorious at piling on the pounds in the good times and cutting to the bone when things are bad, so that rising demand often outstrips supply and prices soar even further when they do eventually recover. And Shell may also have fallen into this very trap, announcing it January it was slashing $15bn from its investment budget over the next three years.
On a separate but related note, van Beurden is also expected to stake out Big Oil’s stall in the climate change debate, arguing, ‘Our industry should be less aloof, more assertive.’
He will poo poo the ‘carbon bubble’ theory, which claims oil companies are overvalued as humanity will eventually realise it can’t burn all the fossil fuels left if it’s going to save the planet. The world can’t do without fossil fuels right now, so ‘the focus should remain on lowering their carbon emissions,’ he will say.
Van Beurden is certainly right that we haven’t weaned ourselves off our addiction to coal, oil and gas yet. But if the effects of climate change do become more obvious, he may find raising his head above the parapet rather trickier.