Reuters

Shell CEO says record oil not due to shortage

Thu May 22, 2008 5:24pm BST

By Karen Noack

LONDON (Reuters) – Oil prices at a record high above $135 a barrel are rising due to market sentiment rather than a shortage of supply, Royal Dutch Shell’s chief executive said on Thursday.

U.S. crude oil hit an all-time peak on Thursday, climbing to $135.09, lifted by concern about long-term supply and a host of predictions of further rises from influential investment banks and investors.

“What we say and what we see is there are no physical shortages,” Shell’s Jeroen van der Veer told Reuters television. He runs the world’s second-largest fully publicly traded oil firm by market value.

“There are no tankers waiting in the Middle East, there are no cars waiting at gasoline stations because they are out of stock. This has to do with psychology in the markets and you cannot forecast psychology”.

His view that there are no shortages chimes with that of other oil producers, such as members of the Organization of the Petroleum Exporting Countries. Others, such as the U.S. government, say supply is tight.

While rising prices are boosting profit for the industry, the Shell CEO agreed that high oil costs were a mixed blessing.

“For many consumers in the world, this really starts to hit them. Secondly, we see that you get a kind of public outcry.

“At the same time, the only thing that we can do is use the profits we make to invest for additional supplies.”

Shell has the largest capital spending programme among its main rivals in 2008, having spent $7.6 billion (3.8 billion pounds) in the first three months of the year alone. It was also alone among its peers in boosting output.

Oil’s climb has led to rising costs in the oil industry for services such as drilling rigs and companies are increasing the long-run price assumptions they use for planning their business.

Van der Veer, asked if Shell needed a price around $80 a barrel to break even, declined to give a specific figure but said it had grown more costly to bring on new supply.

“When oil prices went up, you see that the cost for new projects for the whole industry, not only for Shell, became a lot more expensive,” he said.

“In our industry we see quite severe inflation. We don’t know if that will plateau out or go up further.”

(Reporting by Karen Noack, Writing by Alex Lawler; Editing by Peg Mackey)