In Davos, Movers and Shakers Bullish about Oil Prices
DAVOS, Switzerland — Canada has a lot of skin in the high-stakes oil game as the world’s fifth-biggest producer of oil and gas liquids (such as butane).Interestingly, Suncor just doubled-down by buying tons more oilsands assets, a contrarian move that was backed by experts who appeared on a high-level panel here Thursday.
The chair of Saudi Aramco, the world’s biggest oil company, believes that prices will rise this year again, while the head of Russia’s sovereign wealth fund believes they will reach US$57.95 a barrel in 2017.
That would be music to Canada’s ears – but prices are very irrational and may surprise everyone going forward. And Canada has become a member of an exclusive club: The Big Five producers are the United States at 11.6 million barrels per day; Saudi Arabia, 11.5 million barrels per day; Russia, 10.9 million barrels per day; China, 4.2 million and Canada, 4.1 million, according to the International Energy Agency.
(Little more than half of Canada’s oil and gas liquids production is produced from oilsands and has been steadily increasing even though some longer-term projects have been “delayed.”)The root of the problem is that there is over-supply because investment decisions were made during the heady US$100-a-barrel days, say experts. But as projects are canceled or delayed, prices will snap back just as dramatically.
“The oilsands will be fine,” said Daniel Yergin, oil historian and head of IHS Consultants. “It’s still not recognized as the largest supply of oil reserves among America’s suppliers. Shale oil is lower cost and more flexible to shut in. It is short-cycle oil and the oilsands is long cycle oil.”
Important price signals to watch, Yergin said, are how much shale oil production slows down as well as how much Iran produces now that it’s free of embargoes.
But there’s no indication that Russia or Saudi Arabia will pull back output.
“We are a resilient producer and are prepared for low prices,” Aramco Chair Khalid Al-Falih told the panel firmly. “We have the lowest-cost production on the planet, invest in production internally, have zero debt. The price is irrational and some producers will exit as prices stay down.”
The oilsands will be fine
His confidence is based on forecasts that another one million barrels a day will be consumed this year, nudging prices up slightly, said Al-Falih. “I do feel the market overshot on the low side and by year-end I bet prices will be higher than today.”
But China worries have sideswiped oil, said Yergin. “The oil price is walking arm in arm with Chinese doubts,” he said.
However, Al Falih said that China’s slowdown affects heavy industries that use coal not oil.
Yergin said US$1.8 trillion in projects will be canceled by 2020, which will push a “boomerang effect” or higher prices.
This optimism was echoed by Kirill Dmitriev, CEO of the Russian Direct Investment Fund, who said he agreed with forecasters who believe oil will reach bounce back to US$58 a barrel in 2017.
First Published National Post Jan. 21