Vienna, Austria, September 20--BP Plc chief executive officer John Browne says the era of cheap oil may be over because of tensions in the Middle East and persistent growth in demand, according to China Daily.
"It is unlikely that we will see the weak prices of the 1990s ever again," Browne said in Vienna, where the Organization of Petroleum Exporting Countries was sponsoring a conference on energy markets. "Prices will be higher."
Oil prices in New York surpassed US$49 a barrel in August, a record in more than two decades of futures trading, as demand surged and supplies were disrupted from Iraq, holder of the world's third-largest oil reserves. In 1998, OPEC flooded the market as demand slowed, sending oil to a low of US$10.72 a barrel in December of that year. New York crude averaged US$19.71 a barrel in the 1990s.
BP, the world's second-largest publicly traded oil company, raised its forecast for oil prices earlier this year when assessing the viability of new projects. Browne declined to be more specific when asked what oil prices would average over the next year.
Exxon Mobil Corp chairman Lee Raymond, speaking at the same conference on Thursday, said OPEC and other oil producing countries need to open more land to exploration to meet an expected 50 per cent increase in demand in the next three decades. He said he isn't sure oil prices will be persistently high.
"Whether or not there has been what has been described as a 'paradigm shift' has yet to be seen," Raymond said. "We'll only know the answer to that in hindsight." After adjustment for inflation, oil prices remain a fraction of those seen during the shocks of the 1970s and 1980s. Oil would need to surpass US$70 a barrel to match the levels of June 1981.
Oil and gas companies are restraining growth in capital spending as prices surge, instead giving extra cash to shareholders through stock buybacks and higher dividends.
Exxon Mobil and BP spent a total of US$7.15 billion on stock buybacks in the first half of this year, compared with a capital spending budget of US$13.4 billion, unchanged from last year. Net income rose 9.7 per cent to a combined US$18.8 billion.
Browne said violence in the Middle East, especially in Iraq, is a main contributor to current high oil prices. Oil producers worldwide have about 1 million barrels of idle production capacity, he said. That amount is less than what comes from Iraq, where sabotage has slowed output.
A lack of spare capacity "gives people a sense of insecurity which will prevail for the time being," he said.
Saudi Arabia, Iran and Kuwait, which hold 40 per cent of the world's oil, prohibit foreign companies from owning energy reserves, which their governments consider national resources. Stock markets value oil companies in part on the amount of oil and gas reserves they own.
Some countries, including Saudi Arabia, rely on their national oil companies for drilling. Countries such as Qatar, in contrast, have formed partnerships with international oil companies including Exxon Mobil and Royal Dutch/Shell Group, who provide cash and technology.
"Not everybody wants to do business with an international oil company, and not everybody has to," Browne said. "If we can find a way to do good business, which is not just the volume of oil but also the return on our capital, we will do good business in the Middle East, wherever we can." The Organization of Petroleum Exporting Countries on Wednesday raised its output target by 1 million barrels to 27 million a day as of November 1, after two past increases failed to halt this year's jump in prices.
