‘Be more transparent’
Some leading international consultancy houses are asking international oil companies to open their books and reveal future oil prices especially since the demand for oil will peak by 2036. They should reveal whether they are prepared to meet such a demand, and what their forecast prices range is.
Major oil companies are over-evaluating their oil assets, with optimistic forecasting of future oil prices. The barrel price is forecasted to be within the range of $70 to $80 as their long-term assumptions. Business as usual will not give much attention to the era of electric cars, fuel efficiency and global warming.
Oil companies such Exxon Mobil, Shell, BP and Total think they have enough cushion to protect them from major swing in oil prices with their breakeven closer to $50 or slightly below per barrel – a level that will put them on the safe side. At the same time, they also consider other energy alternatives like the electric boom for instance.
Shell for example made $15.5 billion last year when oil price averaged at $55, and in 2016, it made close to $7 billion when oil price was close to $45.
On the other hand, the oil investments of BP are based on future oil price within the range of $55 to $60, with their longer-term price forecast in the range of a strong $60 per barrel.
However, both companies consider the stress test for oil price to be within the range of $40 per barrel.
A price level of $60 and above should be good news for the oil producing countries on the long run, provided they can keep their eyes open to curtail their expenses, as lower oil prices will lead to stable and comfortable level of consumption, benefiting our oil for it to last longer.
Oil companies have the responsibility of prevailing their price sensitivity, as well as the long-term demand for oil. Oil producing companies should do the same. They may have more confidence in the longevity of oil to be sustainable beyond its so-called peak time after 2036.
By Kamel Al-Harami
Independent Oil Analyst