Oil giant Gulf's CEO predicts crude shock

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The CEO of oil giant Gulf has predicted that crude oil prices could drop by up to 50 per cent to around $US50 a barrel by the end of the year. However, he’s downplayed the impact this might have on retail fuel prices.

Speaking on CNBC business program Squawk Box late last week, Joe Petrowski called the prospect a matter of “simple economics”, dictated more by strong supply than weak demand. “We're producing record amounts of oil and natural gas in the United States and in Canada,” he said.

He and the program’s commentators went on to explain how the issue is compounded by conditions on both sides of the demand-supply equation, with weakening international demand and snowballing price cuts as OPEC countries scramble to compete.

China’s demand is slowing, Petrowski told them, while “travel is picking up. But we’re using much less oil – no oil in the electric sector, and natural gas is taking much of the heating sector away.”

He denied, however, that this is a precursor to the “armageddon” some have predicted in the event of a drop below $80 a barrel, because it’s being driven from the supply side. “[Plus] there’s simply more efficient cars and we’re switching to alternate fuels.”

And besides, half-price crude doesn’t translate directly into half-price fuel. Companies like Gulf still have to refine it and transport it, after all, and those costs aren’t halving. But he is convinced that profit margins will come under pressure.

All of which means, Petrowski predicts, that the biggest potential problems lie not in the commercial sector but in the potential for social unrest in those mainly Arab nations whose governments use oil-funded social subsidies to maintain internal stability.

As CNN commentators explain, the rise in North American energy output, combined with a steady decline in demand worldwide, will likely lead to a drop in demand for OPEC oil of up to a million barrels a day over the next three years. Such a drop, all agree, could adversely affect domestic spending in edgy OPEC member nations like Saudi Arabia, Iran and Venezuela, and non-member nations like Russia.

 

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