Oil price recovery ‘inevitable’

Reuters/Sergei Karpukhin
A US oil refineries strike, a reduction of shale oil rigs, and declining investment by major companies signals to the global market that oil production is going to fall, which pushes the price up, says Mamdouh Salameh, an international oil economist.

RT:What is behind the recent recovery in the oil price?

Mamdouh Salameh: That was inevitable that the price would rise. First there was the strike by the workers in nine refineries in the US. Then there were indications that the number of rigs that is being used to produce US shale oil has been reduced significantly. And third, the investment and expenditure by the major oil companies around the world has declined. All these combined are giving signals to the global oil market that production is going to fall and that will put a huge floor under the oil price and start pushing it up.

RT:The number of oil rigs operating in the US fell last week to a 3-year low. Some say this contributed to the price recovery. But if the price continues to rise, will this trend be reversed?

MS: It will, and I have said in many other interviews that I project that by the second half of this year the oil price will recoup some major losses it made so far and it will go above $60, possibly $70-75 a barrel.

RT:OPEC has consistently refused to cut production, to stabilize prices. Why would it be in the interests of these countries to keep prices low?

MS: US oil shale production is a fact of life and we have to deal with it as a fact of life. Contrary to what OPEC claimed. When the price goes up production of US shale oil will go up as well because they are price sensitive. Consequently, we deal with shale oil production as a fact. But there are other indications as well. OPEC now believes that the global demand for oil will grow faster than has been projected. All the signals indicate that the price will go up further. I also believe that the global economy cannot live at peace with very low oil prices because that will affect the international investment as a whole; it will affect the global oil industry as a whole; and it will affect the economies of the oil producing countries which are a big chunk of the GDP of the world.

RT:What is the likelihood of the oil price returning to over a hundred dollars as it was a year ago?

MS: I expect it to do that but not during 2015. I expect by the second half of this year that prices could touch $70-75. But by next year I hope prices will be approaching their previous level of $100. Remember that the major producers in the Arabian Gulf need an oil price of $100 to balance their economies. They cannot continue to spend their financial reserves waiting for the price to go up. They need a price like that. And I wouldn’t be surprised even if OPEC decides to reverse its wrong decision and cut production for a while to bolster the oil price.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.