Oil leaders strike an upbeat tone at Davos energy session

Slump in crude prices was a “temporary phenomenon” and producers could use it to their long-term advantage.

Davos // Leaders of the global oil industry told the annual meeting of the World Economic Forum in Davos that the slump in crude prices was a “temporary phenomenon” and that producers could use it to their long-term advantage.

“I’ve seen this kind of fall two or three times in my time and we have always overcome it,” Abdalla El Badri, the Opec secretary general, told participants on Thursday at a session on energy economics. “But we should not lay off people like we did before. The price will rebound. The fundamentals don’t warrant a 40 to 50 per cent fall in the oil price.”

His view was echoed by Fatih Birol, the chief economist of the International Energy Agency.

“Oil at US$45 is a temporary phenomenon and we will see upward pressure towards the end of the year,” he said. “Upstream investments will decline by 15 per cent this year, affecting the areas of high-cost production.”

Khalid Al Falih, the president and chief executive of Saudi Aramco, said he was “surprised that people are surprised” at the fall.

“All commodities go through cycles and oil is the ultimate commodity,” he said. “The high price of recent times fuelled growth in supply and the market was propped up too long by geopolitical fears and security worries. That bubble burst last year, and that led to the fall.”

Mr Al Falih said global demand for oil would recover later this year.

“But investment flows will have to be more careful about committing large sums to new supply sources in the industry,” he warned. “Saudi Aramco will use the downturn as an opportunity to sharpen our fiscal discipline, but we are committed to the long-term strategy of using gas for domestic supply and replacing liquid that will go for export. We will also continue to invest in refineries and petrochemicals.”

Mr Al Badri insisted that the decision by Opec in November not to cut production was not directed at producers in the United States or Russia.

“It was a purely economic decision, and a collective decision,” he said. “It is nonsense that this is a war against shale or against the Americans. If we had cut back then, we would not be able to resist pressure to cut next March or June, and then where does it stop?”

Mr Birol said that the big winner from the oil price fall was the US, because of the “revolution” it had achieved in shale oil production.

“Japan and India can also be winners if they put effective policies in place while we have low prices. The losers are Russia, Venezuela and Nigeria.”

Arkady Dvorkovich, the deputy prime minister of Russia, responded: “First of all, we are not losers. At any price level, you can win if you are becoming more efficient. For Russia it’s good to have moderate but stable oil prices.”

He added that Russia’s move to increase energy supplies to the Asia Pacific region was “quite natural” and did not reflect a reduction in supply to Europe.

Claudio Descalzi, the chief executive of the Italian energy group Eni, called for a global central bank for the oil industry.

“Demand for oil failed, but the collapse in the price was also a financial issue,” he said. “Oil is such a big element of the global economy – it has to be stabilised by a central bank.”

One participant expressed a note of scepticism on the general optimism of the panel.

“The oil price has dropped from $100 to $50 and everybody is a winner? I’m confused,” said Ken Hersh, the chief executive of NGP Energy Capital Management. “There has to be a loser somewhere.”


Follow The National's Business section on Twitter