Fall in oil will last 18 months

Oil Will Fall Further Without OPEC Action, Says BP
By Eduard Gismatullin
Dec. 2 (Bloomberg) -- Oil prices will continue to fall during the next 12 to 18 months if OPEC fails to implement “sufficient cuts” and supply stays at current levels, according to Christof Ruehl, the chief economist of BP Plc.
The world economy will stage a recovery from recession in 18 to 24 months, followed by “possible spikes” in oil prices, Ruehl told a conference in London today.
“Demand is now plunging like a rock,” he said. OPEC, the supplier of about 40 percent of the world’s oil, may cut output once or twice more in an attempt to reverse crude’s 66 percent retreat from July’s record, he said.
The Organization of Petroleum Exporting Countries will reduce crude production when it meets later this month in Algeria, the group’s Secretary General Abdalla el-Badri said yesterday. Concerns that a slowing world economy will hurt demand for fuel has pushed oil prices down to a three-year low.
Crude oil for January delivery fell $1.12, or 2.3 percent, to $48.16 a barrel at 11:43 a.m. on the New York Mercantile Exchange. Futures touched $47.36, the lowest since May 20, 2005.
BP, Europe’s second-largest oil company, has so far stuck to its planned capital expenditure program, Ruehl said. The oil producer may scale back investment in future to maintain its dividend, which “is a priority,” he said.
On Oct. 28, BP reiterated capital spending at around $21 billion to $22 billion for the year.
‘Fair’ Price
Saudi Arabia’s King Abdullah and oil ministers from OPEC members Venezuela, Algeria, Nigeria and Iraq said last week an oil price of $75 a barrel would be a “fair” level that supports investment in new capacity.
BP’s Ruehl disagreed with their views, saying: “There is no fair price. There is a price, which balances demand and supply.”
Most OPEC nations’ economies can sustain current oil prices, apart from three or four nations, Ruehl said. Countries that restricting access to their reserves should allow international oil companies to invest in production projects to meet demand for energy, Ruehl said.
“Most investment could take place in areas, which currently locked for private companies,” Ruehl said. “If the purpose of the fair oil price is to allow investment there are easier ways of doing it, you just open up.”
Oil and gas industry costs are falling because of the drop in commodity prices, Ruehl said. Service and equipment costs are bucking the trend because of contractual obligations.
“We will see costs diminishing as the commodity price cycle is turning,” Ruehl said.