Oil groups expect $40 barrel – CNOOC head

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Oil groups expect $40 barrel – CNOOC head
By Alan Beattie in Barcelona
Published: November 18 2008

The world’s national oil companies expect oil prices to fall further and will cancel most planned investment projects even at current levels, according to the head of a Chinese state-owned group.

A recent meeting of the national oil companies in Beijing had predicted oil prices would fall to about $40 a barrel, Fu Chengyu, chief executive of China National Offshore Oil Corporation, told a conference in Barcelona.

“The consensus at the time was that everybody realised the oil price would be even lower,” Mr Fu told the Global China Business meeting. “Nobody knew where it would be but most of them said around $40.”

Mr Fu said that about 27 companies from 23 countries attended the meeting in Beijing, which he said was on October 17 or 18, though he declined to name those present. He described the tone of the meeting as one of “panic” at falling prices.

Executives thought that the oil price would soon rebound to about $50-$55, he said, but even at those levels, investment in new production would be cut back heavily.

“If the oil price remained around $50 or $55, that would mean cutting at least 60 per cent of budgeted projects for the next one or two years from the national oil companies,” Mr Fu said.

Of the new extraction projects planned by state-owned oil companies in deep-sea areas, the lowest break-even oil price was about $60 a barrel and the highest about $90 per barrel, he said.

“When most of the oil companies budgeted their projects, they were using $70, $80, even $100 a barrel for their cash flow calculations,” he said. “For those projects that have started, certainly they will try to complete them, but for those projects that have not started yet they will delay or cancel. Simply, they don’t have enough cash to do all of those that they budgeted.”

Mr Fu also said that any cut in production by Opec, the cartel of oil exporting countries, was regarded as likely to be ineffectual. “Most of the consensus said that if Opec cut production, it might not be as effective as they thought,” said Mr Fu.

Even when Opec had previously announced an output reduction of 1.5m barrels a day, the global oil price still went down, Mr Fu added.