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$US150 a barrel? Shareholder greed could make oil prices double

By Ben Sharples: Bloomberg News: 7 July 2018

Oil investors may regret urging companies to cough up cash now instead of investing in growth for later as the dearth of exploration is setting the stage for an unprecedented crude price spike, according to Sanford C. Bernstein.

Companies have been compelled to focus on boosting returns and shareholder distributions at the expense of capital expenditures aimed at finding new supplies, analysts including Neil Beveridge wrote in a note on Friday.

That’s causing reserves at major producers to fall and the industry’s reinvestment ratio to plunge to the lowest in a generation, paving the way for oil prices to surpass records reached last decade, according to Bernstein.

“Investors who had egged on management teams to reign in capex and return cash will lament the underinvestment in the industry,” the analysts wrote. “Any shortfall in supply will result in a super-spike in prices, potentially much larger than the $US150 a barrel spike witnessed in 2008.”

The world’s oil giants including Royal Dutch Shell and BP navigated the price crash of 2014 by cutting costs, selling assets and taking on debt to help satisfy investors with hefty dividends. The biggest, Exxon Mobil, was punished by shareholders earlier this year after compounding disappointing results with a massive spending plan and a lack of buybacks. FULL ARTICLE

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