Slower growth in oil supply is helping the crude market to re-balance, and prices are set to increase over time, according to the head of the world’s biggest producer.
As investments in new oil and natural gas capacity have been being cancelled or deferred worldwide, supply is rising more slowly, especially production of US shale oil, Saudi Arabian Oil Co chief executive officer Amin Nasser said yesterday. Global demand is “on a steady, if moderate course,” he said in a speech at a conference in Dubai.
“Despite volatility, the market is heading toward re-balance, and prices are likely to strengthen with time,” Nasser said. “However, market volatility could remain with us for the near future.”
Oil-producing nations have been considering limiting output to counter a global glut that has cut crude prices by more than half from their 2014 peak. Saudi Arabia and other Opec members are meeting in Algeria this week and may consider freezing production in an effort to shore up prices. Brent crude, the global benchmark, has averaged about $43 a barrel so far this year.
Crude gained about 11% in August on speculation that the Organisation of Petroleum Exporting Countries will reach an output deal in Algiers. The group’s discussions are a sign Opec may be reconsidering a Saudi-led policy adopted in 2014 allowing members to raise output to protect market share from higher-cost producers, including US shale drillers.
Opec’s production rose to a record 33.69mn bpd in August, just under a third of global demand, data compiled by Bloomberg show. Saudi Arabia, the group’s biggest producer, pumped a record 10.69mn bpd last month, the data show.
“While the oil market has recovered from its most severe period, it’s still weak,” Nasser said.
Improvements in energy efficiency have tempered consumption growth, but an expanding world population and rising living standards in developing countries will support long-term demand, and oil’s central role as a source of fuel for heavy transportation and feedstock for petrochemicals will remain solid, he said.
“The oil and gas resources we have available, as well as new discoveries, are more challenging and more expensive to develop. At the same time, the present oil and gas fields are becoming increasingly mature and complex to operate.” Saudi Arabian Oil Co, known as Saudi Aramco is exploring more intensively to augment its “resources” to 900bn barrels from 800bn barrels over the next decade, Nasser told reporters. It’s targeting an increase in oil-recovery from its fields to 70% from 50%, he said, without specifying timing.
State-run Aramco plans to sell shares in what could be the biggest initial public offering ever. It’s still developing a plan for an IPO in 2018, Nasser said.