· BP chief predicts drop to as little as $25 a barrel
· Fears of declining petrol supplies dismissed
Terry Macalister
Tuesday June 13, 2006
Lord Browne, BP’s chief executive, held out the prospect of a big drop in crude oil prices to $40 a barrel as he dismissed views that petroleum was running out very fast.
His optimism came despite a 1 cent rise in the price of Brent crude or July delivery to $70.49 a barrel in morning trading in London as traders continued to fret about tensions in the Middle East.
It was barely a month ago that some industry experts were talking about the possibility of price spikes of $100 a barrel and BP had condemned financial speculators for artificially pushing up prices.
But yesterday Lord Browne was eager to outline his belief that the value of oil on world markets should begin to return to more normal levels. “It is very likely that, in the medium term, prices will stand at about $40 on average. In the very long run, even $25 to $30 are possible,” he said in an interview with the German weekly news magazine Der Spiegel.
Lord Browne accepted that it was unlikely prices would fall sharply in the short term but dismissed notions that the price could only go up as scarcity increased. Large oilfields were still being found, he said, and regions such as west Africa had more hydrocarbons that could be tapped.
He also noted that Canada’s oil sands could also be exploited profitably. Even though they were expensive to bring out of the ground, production costs remained well below world selling prices for crude.
BP has so far kept away from these “unconventional” oil projects but Shell has been investing enthusiastically in the tar schemes of Alberta, Canada, buying up companies engaged in such output.
Lord Browne warned at BP’s annual results presentation on April 25 that fear was one of the factors driving up crude prices that helped his company produce underlying profits of £3bn in the first quarter of the year.
Yesterday the July price of Brent rose on the Intercontinental Exchange (ICE) futures market but light sweet crude for the same month’s delivery was down 11 cents to $71.52 a barrel in Asian electronic trading on the New York Mercantile Exchange. The price later rose 7 cents to $71.70.
Singapore traders were said to be only slightly relieved by the first comments from the Iranian government about the incentives offered by Europe and the US to try to break the deadlock over the nuclear programme. Victor Shum, an energy analyst in Singapore with the US consultancy Purvin & Gertz, said: “The market’s aware that the Iranian issue is not going to be resolved in the short-term.”
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