A leading oil economist has warned that a worldwide drop in crude prices could impact on future North Sea projects designed to maximise recovery from the UKCS.
Professor Alex Kemp, from the University of Aberdeen, said the recent fall in cost for Brent Crude and West Texas Intermediary (WTI) was due to “stubbornly high” reserve stocks.
Despite an initial bounce above $50 dollar following oil cartel OPEC’s production cuts, trading closed last night at $48.90 for a barrel of Brent.
WTI was riding just above $46 dollars a barrel with several hours before the American markets closed.
Professor Kemp said many traders remain skeptical that the cuts will reduce global stockpiles sufficiently.
The industry is currently awaiting an update from OPEC, due at the end of this month, on whether the cuts will be extended any further than the July 1 deadline.
All these unknown factors contribute to greater uncertainty over North Sea projects, Kemp claims.
He said: “The price dipping below $50 in the North Sea means projects which were being examined will be looked at more closely.
“All our modelling has shown that at $50 a barrel not all that many new projects will go ahead.
“At $60 a fair number could go ahead but the investors would need to be satisfied that $60 is going to be sustained and it won’t dip down again in a year or so.”
OPEC attempted to reduce the glut earlier this year by reducing oil output by some 1.2 million barrels.
Several other non OPEC countries, such as Russia, agreed to follow suit for the first six months of 2017 in the hope that the fallen price may bounce back as reserves dwindled.
Saudi Arabia, OPEC’s de facto leader, has borne the brunt of the cuts according to market data over the start of the year.
The professor of petroleum economics added that the swollen American market, bolstered by shale, was adding to issues.
He said: “Stocks of oil have kept up quite well. The idea in the market before had been that when OPEC cut production this would lead to a worldwide reduction in stocks.
“But that hasn’t happened. They have remained somewhat stubbornly high.
“American onshore production is also holding up well and is, in fact, increasing.
“At the kind of prices we have at the moment, with the cost reductions they’ve had in the states, onshore production like shale oil is now profitable again.
“The market makers – the traders – are not fully convinced that OPEC and collaborating countries like Russia will renew the cuts which they agreed in Novemeber.
“They are looking ahead now to if these will be renewed. They will be waiting for OPEC to make some announcements on that.
“These are the reasons the price has come down in the last few days.”
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