El-Badri’s comments came in a speech at the Oil and Money conference that started Monday in London. According to a report at Platts, el-Badri said global investment could drop by $130 billion in 2015 from its level of $650 billion in 2014.
There have been reports that OPEC representatives would meet with Russian oil producers to discuss oil prices, and that led to conjecture that OPEC and Russia would agree to reduce production. That was enough to prop up crude prices Monday, but November Brent prices on Tuesday bounced from a low of $48.86 to a high of $49.46 as there seems to be little substance behind the rumors.
It is highly unlikely that either OPEC or Russia would agree to cut production. OPEC believes its strategy of focusing on market share is working. In fact, on Sunday, Saudi Aramco, the national oil company of Saudi Arabia, announced a cut to the official November price for sales of medium grade crude to Asian and U.S. customers to a discount of $3.20 a barrel below the regional benchmark. The October discount was $1.30.
As for Russia, it cannot afford to cut production. Oil and gas are the country’s main source of export revenue, and with crude oil prices so low Russia must pump more oil just to keep the cash flowing. Besides, Russia has always taken advantage of any cut to OPEC production to try to grab market share. This time the players may be lined up a bit differently, but the strategy will not change.
OPEC’s el-Badri is right about the lack of new investment and what that will mean for future supply. And he may be right about a price rise soon, but he did not say either how soon or how big. Those are the big questions.
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