So who’s fault is it?
Today at IAH’s CERA Week we heard from Mexico that the transition would continue toward a more open oil and power sector and that would lead to prosperity. One has to assume that prosperity would be achieved by increasing production, probably not good when looking at the current price environment for oil. According to the President, they will continue with a round of investment offerings for deepwater, they would increase imports of natural gas from the US and they would allow private companies to sell gasoline in Mexico without partnering with PMEX.
This was followed by a discussion between OPE, the IEA and HIS regarding the state of the industry and where things are going. Interestingly the OPEC head blamed the low price environment on non-OPEC producers while IEA stressed lower demand increases as the main culprit.
IEA pointed out the demand driven by transportation is being affected by increased environmental regulations and increasing CAFÉ standards. (Some 70% of all vehicles are now subject to increased CAFE standards) OPEC points to the increased production by the USA, increased production from Russia putting downward pressure on the prices and each forcing a lack of investment. Depending on which side of the equation you focus on “low prices” are cured by “low prices”. OPEC and IEA expressed real concerns on the cuts in oil and gas investment. With no investment, production will go down, with low oil prices demand will increase, this is a formula for high prices. in fact IEA predicted that prices would begin to rise by 2017.
The CEO of GE, "you don’t need 100 page reports to tell me that we don’t know what is happening with oil prices.” Opinions vary, and his focus has never been on the price of oil but on the general direction of where it might be going.
What was interesting was the head of OPEC openly admitting that they have been talking to non-OPEC producers seeking a solution to low priced oil. I think that might represent a burgeoning new “OPEC” type organization. By the way, the only producer not represented at the table today is the US. Another point brought out by OPEC in regards to the US was a lack of understanding as to why the US would export today. The prices are at their lowest, why would the US not be investing in storage. “Why export (and compete with OPEC) when you are a major consumer and importer of oil.” At this point the US should be investing on storing oil while the prices are low.
OPEC seems to feel that their recent announcement on the “freeze” was the beginning of the attempt to find a “solution”. OPEC is committed to “seeing what the ‘Freeze’ might do”. When pressed he again expressed this as a process, he downplayed the threatened increases by Iran as a natural process, and that they would re-evalute the “effect” and make further decisions on what to do. IEA heard this and stressed that no matter what OPEC does, US shale will provide a cap on the possible rise in price going forward.
IEA made a plea to consuming countries that need to diversify, OPEC agreed but pointed that hydrocarbons would continue to represent up to 80% of energy supplies for the foreseeable future.
So the answer, where will oil prices go from here, if you are OPEC you attempt to control that outcome. If you are from the IEA you are very afraid of the lack of investment from the producers and what that means for consuming countries going forward.