BP: Price of one barrel of oil can exceed $100 level

Baku, Azerbaijan, Nov. 8

By Huseyn Veliyev - Trend:

It is conceivable that the price of oil will rise to more than $100 per barrel, Vladimir Drebentsov, the Chief Economist of BP for Russia and the CIS said at a meeting with reporters Nov. 7.

Drebentsov said it is unlikely that the high oil prices will remain at the same level for five years.

"I believe that the level of oil prices in the range of $100 and above is not sustainable, based on the obvious changes in our latest forecast compared to the previous one. We have extended the forecast period by five years. So, while the previous forecast covered the period from 2017 until 2035, the period of the last forecast was extended until 2040. This brought quite significant changes to the analysis of the prospects for the oil market, as it was found that the demand for oil would stop growing after 2035. Moreover, it will begin to decline slightly. Of course, we cannot say for sure that the peak of demand will be reached in 2035. This can happen earlier, and maybe later. But this will happen for sure," Drebentsov said.

The expert believes the opinion that the world will do without oil in 2040 is groundless. He also added that when the demand decreases, the competition among oil-producing countries will increase.

"The oil market differs from the markets of other raw materials in that it has a successfully functioning cartel. There are no other successfully functioning cartels on the world market of raw materials. The OPEC’s function is to reduce the growth in oil production in order to maintain the prices. The Vienna Agreement demonstrated that this practice is justified. If we look at a longer perspective, then it will be found that such behavior is not the most rational one. Because when the countries limit their own production in order to maintain prices, they thus allow producers with higher costs to enter the market and occupy a niche in the market," Drebentsov said.

At the same time, the chief economist of BP believes, no one sees this as a problem in the framework of the old paradigm because it was believed that the period for monetization of stocks is infinite.

"Yes, oil will be needed by everyone for a long time, but the question is that it will be needed in smaller volumes. That is, the growth will end and the reduction will begin, but no stocks will be left. The stocks will remain in Saudi Arabia, the US and Russia. That is, those producers, whose mining costs are low, will have stocks. Taking into account their cumulative revenues, they can maintain prices without competing with each other, by adhering to cartel agreements. That is, they will actually harm themselves in the long run. Because their cumulative income function may turn out to be lower and their total income may turn out to be lower than in case when they would have started competing with each other. It seems to us that this is inevitable, and we will witness just a competition between the three production centers as the peak in oil demand nears," Drebentsov said.

The expert said after 2030, the United States will produce oil twice as much as Saudi Arabia and Russia. Because the resource base of shale oil in the United States allows for this, and the cost of production continues to decline. Accordingly, the American shale mining will turn out to be competitive in the future under relatively low and quite little prices.

"The question facing Russia and Saudi Arabia is that it would be good for them to be able by that time in the future to compete under such lower prices in order to monetize their stocks. Because the future generation may not need those stocks that much. This is a very serious question. But we do not see it yet and we live by observing the consequences of such a cartel agreement as the Vienna Pact,” Drebentsov said.


Follow the author on Twitter: @h_veliyev

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