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The price of oil has to rise

The price of oil has to rise
A $60 to $80 price range would meet both OPEC?s needs and cover the cost of investing in difficult oil exploration projects.

A $60 to $80 price range would meet both OPEC"s needs and cover the cost of investing in difficult oil exploration projects.

The price of oil has to rise between $60 and a barrel to safeguard investmewnts, according to the bosses of oil cartel OPEC and top energy firms. The downturn had resulted in ?dangerous demand destruction?, said OPEC Secretary-General Abdalla EL Badri. He said OPEC would cut production further, if prices did not recover. BP boss Tony Hayward said a $60 to $80 price range would meet both OPEC"s needs and cover the cost of investing in difficult oil exploration projects.

The energy industry would have to invest $25 trillion over the next 20 years, he said during a session at the World Ecocum in Davos. ?The price of oil has to be high enough to motivate investment going forward.?

?When the economy picks up, demand will pick up very fast and we will quickly run into supply problems,? said the BP group chief executive. ?We do need a price that allows us to continue to invest in the downturn.?

Mr. EI Badri agreed: ?A $50 price will not allow us to invest. If we don"t invest now, then we will store up a problem in three years from now when your demand picks up.?

With demand falling sharply, Opec had already cut its production several times, and its members were on track to meet the lower targets by 15 February.

But he said he had not been ?not happy? with last year"s record price of $147 a barrel either. ?This was not based on any fundamentals.?

He blamed speculators and investors fleeing the US sub-prime mortgage market for last year"s soaring oil prices. There had been no shortage of supply, he said.

Pierre Gadonneix, the chief executive of French energy giant EDF, agreed with the price range proposed by Tony Hayward, but said investments would have to be made regardless of the economic downturn.

?If we invest... it"s for decades,? he said. ?We can invest now, the long-term perspective of the energy sector has nothing to do with the current downturn.?

?We know the economy will start again - whether in months or years - so we should invest now.?

While there was some agreement on price, the session at the World Economic Forum also showed the fault lines between producers, energy firms and consumers.

While Mr Gadonneix and Mr Hayward called for a diverse energy mix of oil, coal and renewables (and in case of Mr Gadonneix for nuclear), Mr EL Badri bristled at the suggestion that OPEC would be treated as a ?back-up? source of energy.

OPEC members could not be asked to invest

OPEC members could not be asked to invest into oil production just to fill the gaps should energy diversification not work.

While high prices may make sense for oil producers, they create huge social problems, especially in the countries that will be the main drivers for energy demand, India and China, warned Mukesh Ambani, chairman of India"s Reliance Industries.

Reliance is an active player in oil and gas exploration, and about to start delivering gas worth an oil equivalent of 600,000 barrels a day from fields on the east coast of India.

?Oil is important for the prosperity of our people,? he said. Consumers in emerging markets needed ?affordable energy? to achieve ?quality of life?.

Mr Ambani also appeared to blame speculators for high oil prices, noting that for every barrel produced, 30 had been traded on world markets.

He called for global regulation to make energy markets transparent, ?where one knows whose money it is, who is buying and selling?.


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