National press reports claiming the Shell boss would forecast prices would remain low for the rest of the year have proved wide of the mark.
In previews of his speech to the Energy Institute on Thursday evening, some of the press claimed Ben van Beurden, CEO of Royal Dutch Shell, would predict prices would remain at a six-year low for the rest of the year, but in fact he was much less clear cut.
He conceded that the market in 2015 would remain volatile because of the current stance of OPEC, and suggested a range of future scenarios and how prices would react if they occurred.
He said: “What will happen in 2015? I can’t predict the future, but oil demand is clearly linked to economic growth. Compared to last year, the International Monetary Fund expects the global economy to grow. So, global oil demand is expected to grow as well.
“But seeing today’s prices, supply will probably not keep pace with this growth. It may even decline, as prices are close to cash costs, according to consultants like Wood Mackenzie. As a result, energy companies could shut down some of their existing production.
“If the brighter economic outlook becomes reality, the market could tighten, and this would support higher prices. But two questions remain. Firstly: How far and how long will prices fall? Secondly: How quickly can prices recover?
“A rapid recovery could occur if projects are postponed or even cancelled. This would lead to less new supply — not so much now, but in two or three years. Combined with economic growth, the market could tighten quickly in this scenario.
“But what if the largest supply growth engine, US shale oil, proves to be resilient in the face of falling prices and the markets remain well-supplied? In that case, with moderate economic growth, prices could stay low for longer.
“Either way: The market will remain volatile in 2015, if only because for now OPEC shows no sign of wanting to resume its role as swing supplier. But for the longer term, I see no change to fundamental drivers of oil markets such as rising demand and the need for new supplies.”
Looking to the longer term he predicted demand for oil would continue to grow and oil prices would need to reflect the investment needed to meet that demand.
He said: “Production from oil fields typically declines at a rate of at least 5% a year. This means that the need for new supply could be as high as 5 million barrels a day, year after year until at least 2030.
“This amount of supply cannot be delivered by OPEC or shale oil producers in the US alone. It will need to come from new and challenging areas, and has to be supported by an oil price that justifies huge investments.”