Oil price between USD 40 and 60 a barrel is acceptable for production but barely enough for investments

21 march 2016

Alexander Kurdin, Head of the Department for Strategic Studies in Energy of the Analytical Center, talked to Nation-news.ru about the situation with the price of oil. Mr. Kurdin believes that a price of about USD 40 a barrel is an equilibrium that can persist for one or two years. If oil falls below USD 40 a barrel, some oil producers will find it hard to make ends meet.

Alexander Kurdin
Alexander Kurdin
Department for Fuel and Energy Sector

“If the price remains at USD 40 a barrel, all producers will be able to keep going,” Alexander Kurdin said. - “Seeing how there is plenty of stocks available in the market, which are putting a downward pressure on the price, we cannot really expect it to go any higher than 40 to 45 dollars a barrel.”

The expert went on saying that in the current situation a price of USD 40 a barrel was fundamentally justified in the market. Sure, occasionally it may still fall below 40 a barrel on bad news from time to time. But every time that happens, it is bound to bounce back in fairly short order.

“There are no grounds for expecting the current situation in the market to change any time soon,” Mr. Kurdin said. ‑ “We are not going to see sustained growth until at least mid-2017.”

Experts often point out that at low prices of USD 25-30 per barrel, most oil companies cannot afford to invest even part of their sales revenue in development - exploration and exploitation of new oil deposits. When the price is that low they can barely manage to make ends meet.

“When the price goes below USD 60 the first thing that happens is investments in US shale oil dry up immediately,” Mr. Kurdin said. “Ironically it was the surging supply of shale oil that originally caused the oil price to tumble. But it was shale oil that took the first blow from tumbling prices too. Experience tells us that shale oil producers are the first to close up shop, then projects operating in the Arctic and other hard-to-get-at deposits follow suit. And the number of the latter is constantly rising. For that reason, an oil price between USD 40 and 60 a barrel is acceptable for production but barely enough for investments.

Only Eastern Arabic producers that still have lots of cheap oil at their disposal can afford to keep investing in traditional exploration, the expert noted. At the current price they can invest in production should they decide this course of action makes sense.