Oil for $300. Is It Possible?
Ivan Danilov
SputnikNews.com
10.05.2018
If major oil companies keep postponing the necessary investments, the next “huge supply shock” may bring the oil price up to $300 per barrel. It’s not a fringe theory. It’s the forecast of a legendary hedge fund manager.
Pierre Andurand, one of the oil sector’s most high-profile speculators, posted a series of inflammatory tweets about the oil market prospects only to delete them several hours later. However, the Internet forgets nothing and soon the screenshots of his tweets started circulating on the social media and in the blogosphere, causing quite a stir among the oil market experts and journalists.
Andurand, who is a bona fide Wall Street legend, believes that the current price of oil, the wrong forecasts about “peak oil consumption” and the wrong strategies of the energy companies are all indicative of a massive future supply shock that is likely to cause a never seen before the spike in oil prices. His target price for such a scenario is $300 for a barrel of crude.
If such a scenario does play out, literally no one will be happy, and that includes the oil-producing countries. Certainly, a big supply shock and skyrocketing prices will be good for the state budgets of Saudi Arabia, Iran, Russia or Venezuela, but when the prices are too high, they become a drag on the world economy and may even cause a full-blown recession.
When the oil price is too high, investments in non-extractive sectors of the oil-producing countries become unattractive, and when the price eventually drops, the oil-producing countries are left with underdiversified and inefficient economies.
Pierre Andurand is not the first to warn that continuous underinvestment in new capital-intensive projects is dangerous in the long run. Andurand is a speculator, who made his name and fortune betting on oil prices so, his position is obviously subjective, but there are other experts who share his concerns.
Here’s Deloitte’s take on the issue from 2016: “A lower-for-longer oil price environment has taken a toll on the capital spending of exploration and production (E&P) companies. Actual and announced capex cuts have gone below the minimum required levels to offset depletion, let alone meet any expected growth”. If offsetting depletion is impossible, then a supply shock and a price spike are almost unavoidable.
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