Oil is in danger of rebounding to levels of $200 per barrel unless billions of dollars are invested into developing new fields despite the pressure on oil companies to make deep cutbacks in response to falling prices, the head of Opec has said.
Speaking to The Telegraph in London, Abdalla Salem el-Badri, secretary general of the Organisation of Petroleum Exporting Countries (Opec), said: “If we cut production then there will be spare capacity and producers will not invest, or postpone projects. The market will rebound back higher that the $147 we saw in 2008.”
In 2008, Goldman Sachs argued that crude would reach $200 per barrel but within months of its prediction prices had crashed towards $40 per barrel with the onset of the global financial crisis. However prices did peak in July 2008 at over $147 per barrel.
Brent crude dipped under $48 per barrel on Monday after fears that the succession of a new ruler in Saudi Arabia would prompt a change in policy eased. The benchmark is down 60pc since June last year, with most of the declines following Opec’s decision to keep its production levels unchanged in November.
The move by the 12-member cartel, which controls the world’s largest oil reserves, has since triggered a price war with producers outside the group. Opec has over the last decade been losing market share to Russia and shale oil drillers in the US, prompting it to allow prices to fall to cut out rival production.

The cartel benefits from low production costs, which give its members such as Saudi Arabia, a competitive advantage over shale oil drillers and the North Sea.

Oil companies have already started to cut back aggressively, with $20bn of refinery and energy projects in the Persian Gulf cancelled in February. In the UK, producers in the North Sea including BP and Sinopec-Talisman have cut hundreds of jobs in the last week and more cuts are expected to come in Britain’s energy capital.

According to El-Badri, Opec has not increased its 30m barrel per day (bpd) production capacity for the last decade, while output from beyond the ground has grown by 7m bpd over the same period. He said that the group isn’t expecting oil prices to rise significantly until after the first half of 2015 by which time unprofitable production outside Opec will have slowed.

“These low prices are a good shot in the arm for the world economy and we’re hoping that demand will be lifted,” he said.

However, signs are already emerging that the new era of lower oil prices is beginning to hit production levels outside Opec. Drilling rig counts are down in the US and the International Energy Agency (IEA) is now predicting that production growth in non-Opec countries will slow rapidly. The Paris-based watchdog has revised down its estimate by 350,000 barrels bpd, which is roughly equivalent to six “Elephant” scale oil fields worth of output. Baker Hughes claims that the oil rig count in the US saw its sharpest weekly fall since 1991 earlier this month.

“We need a reasonable price that works for all producers,” said El-Badri, adding that the group would still be willing to sit down with countries such as Russia if they were prepared to rein in their own production to help balance the market, which is estimated to be over-supplied by about 1.5m bpd.

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11370166/Opec-warns-of-200-oil-without-investment-despite-recent-slump.html