Decline in oil prices.. is temporary or permanent?

Prince Abdulaziz bin Salman, Saudi vice oil minister: ‘Price surge after cutbacks”

November 09, 2015, Wael Mahdi and Mohamed Aly Sergie

DOHA, Qatar (Bloomberg) — The scale of the global oil and gas industry’s spending cuts are making another surge in energy prices possible by diminishing future supply, Saudi Vice Minister of Petroleum & Mineral Resources Prince Abdulaziz bin Salman said.

Just like high oil prices can’t last, a prolonged period of low prices is “also unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise,” the prince said in the remarks. “As a responsible and reliable producer with long-term horizon, the kingdom is committed to continue to invest in its oil and gas sector, despite the drop in the oil price.”

Oil prices have declined 42% in the past year as Saudi Arabia led the Organization of Petroleum Exporting Countries in maintaining production in the face of a global glut rather than make way for booming U.S. output. Supply from outside the 12-member group will start to decline next year and the drop will accelerate after that, according to his speech.

The impact of the current price instability is not just confined to the oil sector as “the spillovers  are being strongly felt in other parts of the energy complex, such as renewable and natural gas,” Prince Abdulaziz said.

Oil demand is expected to be 94 MMbpd this year, rising 1.5% from last year, with about 2 MMbpd of spare capacity, mainly held in Saudi Arabia, the prince said in the prepared remarks.

The decline in oil prices is “temporary,” and crude is steadying at $55–60/bbl amid stronger global demand, an adviser to Saudi Arabia’s oil minister said.

“I’m very optimistic about recovery of oil prices,” Dr. Ibrahim al-Muhanna, a senior adviser to the Saudi oil minister, Ali al-Naimi, said without giving a date for any increase. “The world’s current petroleum problems are temporary, and their effect on the world system is limited.”

Oil prices will probably rebound next year, United Arab Emirates Energy Minister Suhail Al Mazrouei told a conference in Abu Dhabi on Monday.

Worthy to mention that some European analysts and decision makers has the same optimistic view about prices. “Oil Price at $40 can’t last for long, and prices will have to rise as supply drops out of the market”, said Tord Lien, Norway’s Oil Minister.

Norway currently produces around 1.56 million b/d, and has a goal of adding 5 billion barrels of oil to its reserves, and expects to start production from its fifth largest discovery ever made on the Norwegian continental shelf “Johan Sverdrup field” by 2019.