Oil prices at current levels may have reached a floor and could move higher very soon, OPEC’s secretary-general said on Monday, his first public comment that oil’s second-biggest decline on record may have run its course.
Abdulla al-Badri also warned of a risk of a future price spike to $200 a barrel if investment in new supply capacity is too low.
“Now the prices are around $45-$50 and I think maybe they reached the bottom and will see some rebound very soon,” Badri told Reuters on the sidelines of a conference at Chatham House.
The 12-member Organization of the Petroleum Exporting Countries pumps about a third of the world’s oil and until last year had a policy of adjusting its supply to support prices.
Oil prices have fallen almost 60 per cent since June to below $49 a barrel on global oversupply. Prices kept falling after OPEC’s surprise refusal in November to cut its output to retain market share against rival suppliers.
Defending OPEC’s decision, Badri warned that any oil supply cut would lead to spare production capacity, a lack of investment and an eventual shortage and price spike that could exceed that of 2008, when oil hit its record high above $147 a barrel.
“Suppose we cut production, and then we’ll have spare capacity,” he said. “Producers, when they have excess capacity, they will not invest.
“If they do not invest there will be no more supply, if there is no more supply there will be a shortage in the market after three-four years and the price will go up and we’ll see a repetition of 2008.”
“Maybe we will go to $200 if there is a real shortage of supply because of the lack of investment,” Badri said.
Oil’s decline in 2014 was its second-biggest ever, after the collapse in 2008 which followed the record high.
Some OPEC members, including Venezuela, have continued to call for output cuts. Its President Nicolas Maduro earlier this month visited several OPEC countries, and non-member Russia.
While praising Maduro’s efforts, Badri said there was no imminent prospect of OPEC and non-OPEC producers sitting down to discuss cutbacks.
“It will take some time,” he said. “It will take another four-five months and we will not see some concrete efforts before the end of the first half of the year due to the reason that we will see how the market behaves at the end of the first half of 2015.”
Badri further defended OPEC’s decision in November to leave its output target unchanged.
“It was a collective decision,” he said. “Everybody participated in the decision, there are some remarks and some reservations but at the end of the day all the ministers agreed to this.”
Asked about the prospect of a change in oil policy in top OPEC producer Saudi Arabia under its new king, Badri said: “Saudi Arabia is a stable country, is a stable government, and I think things will be normal.”