The lower for longer mantra currently characterising the oil market and leading the world's biggest energy companies to slash hundreds of billions of dollars in investment is misguided, a senior Saudi official said on Monday.
"Just as the assertions, heard a few years ago that the oil price would reach $200 a barrel were proved wrong, so the recent assertion that the oil price has shifted to a new low structural equilibrium will also turn out to have been wrong," said Prince Abdulaziz bin Salman, the kingdom's deputy oil minister.
In a speech at an energy conference in Doha, Prince Abdulaziz warned spending cuts across the industry - as prices collapsed from a June 2014 high of $115 a barrel to below $50 - will have a "substantial and long-lasting" impact on future oil supplies and could lead to a price spike.
"Non-OPEC supply is expected to fall in 2016, only one year after the deep cuts in investment. Beyond 2016, the fall in non-OPEC supply is likely to accelerate, as the cancellation and postponement of projects will start feeding into future supplies, and the impact of previous record investments on oil output starts to fade away," Prince Abdulaziz said in the speech, quoted by Reuters.
He added:
The scars from a sustained period of low oil prices can't be easily 'erased'.
Prince Abdulaziz said Saudi Arabia, the world's largest crude exporter, will continue investing in its oil and gas sector and believed long-term industry fundamentals "remain robust."
His comments suggest the Kingdom is satisfied with its strategy of not cutting production to prop up oil prices for the benefit of rivals, echoing other senior officals in the kingdom