The head of OPEC defended the organization’s recent stand on oil production on Sunday and argued that the relentless slide of prices could be the result of speculation rather than a reflection of oversupply.
Abdullah al-Badri, the Organization of the Petroleum Exporting Countries’ secretary-general, said the cartel’s members can survive the slump and urged Gulf states to continue to spend on exploration and production.
Down more than 40 per cent since June, oil prices hit five-year lows on Friday – a decline that has hammered equity markets around the world. The price drop, Mr. al-Badri said, is without merit.
“The fundamentals should not lead to this dramatic reduction [in price],” he said at a conference in Dubai, speaking in Arabic through an English interpreter.
He said only a small increase in supply had led to a sharp drop in prices, adding: “I believe that speculation has entered strongly in deciding these prices.”
At the end of November, OPEC decided to maintain its production at roughly 30 million barrels of oil a day. The benchmark price for a barrel of oil in North America is down about 15 per cent since this decision. OPEC, Mr. Badri reiterated, does not have a target price for crude.
Falling oil prices have forced energy firms around the world – from U.S. shale plays such as the Bakken in North Dakota and the Eagle Ford in Texas to Alberta’s oil sands – to crimp spending and reconsider expansion plans.
Canadian Oil Sands Ltd., for example, this month announced a dividend cut of 42 per cent. Cenovus Energy Inc. last week cut its 2015 budget by 15 per cent compared with 2014. Canadian Natural Resources Ltd. has earmarked $2-billion of its $8.6-billion budget as optional, depending on commodity prices.
Encana Corp. will release its 2015 budget Tuesday, and it has already said it will break from the energy industry’s trend toward austerity. Encana is attempting to shift toward oil and away from dry natural gas. The plan, however, relies on the company expanding in some potentially prolific – although not entirely developed – areas in North America.
Doug Suttles, the company’s chief executive, last month said the company would spend “substantially” more than the $2.5-billion (U.S.) to $2.6-billion it will outlay this year. The “predominance” of Encana’s activity in 2015 will take place in the Montney, in Alberta and British Columbia; the Duvernay in Alberta; the Eagle Ford in Texas; and the Permian basin in Texas, he said.
Encana’s push in three of these unconventional plays – the Montney, Duvernay and Permian – puts it in contrast with ConocoPhillips Co., one of the world’s largest oil and gas firms. That company iced significant spending plans in those emerging areas when it released its 2015 budget earlier this month in reaction to sliding oil prices. ConocoPhillips kept the Eagle Ford play, which is generally more developed than the others, remains in its good books.
Encana’s gamble could pay off if its competitors sit on the sidelines during the downturn in crude prices.
OPEC’s Mr. al-Badri on Sunday continued to argue the cartel’s decision to maintain production was not designed to undermine the potential for oil production in North America’s shale plays.
“Some people say this decision was directed at the United States and shale oil,” he said. “All of this is incorrect. Some also say it was directed at Iran and Russia. That is also incorrect.”
However, Kuwait’s oil minister said on Sunday that OPEC’s decision designed so the 12 member countries could retain market share, even if prices dropped.
“OPEC, which includes Kuwait in its membership, took the decision not to cut production in order to maintain market share, even if not cutting output negatively affects prices,” state news agency KUNA quoted Ali al-Omair as saying.