Opec’s Abdalla El-Badri warns oil prices could hit $200 amid lack of investment
The secretary-general of the Organisation of Petroleum Exporting Countries (Opec) has warned under-investment could one day push oil prices as high as $200 per barrel, as crumbling demand risks discouraging producers from pumping money into the infrastructure needed to actually get oil out of the ground.
Oil prices crashed by 70 per cent to $40 per barrel in 2008, after concerns over the faltering US economy and the onset of the financial crisis squeezed global demand. Prior to this, growth economies such as India and China gobbling up oil and supply concerns pushed prices to around $140 per barrel.
This makes the black stuff's current decline - with the price per barrel falling 60 per cent since June last year - its second biggest ever.
However, El-Badri defended Opec's decision not to cut production in November, saying this would've meant countries produced more than markets need. In such a situation oil producers have no incentive to invest in future oil production.
But other industry players have argued the ability to discourage under-investment actually lies with Opec, whose failure to curb production in November means oil prices will stay low, and this will eventually cause individual oil companies to scale back their investments.
"Opec is like the central bank for oil, which must give stability to the oil prices to be able to invest in a regular way," Claudio Descalzi, chief executive of Italian oil producer Eni, said at Davos.
So while both agree that weak demand is putting the world at risk of future oil price spikes, neither seem sure what to do about it.
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- January 27, 2015
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