"Ingenious" Americans Will Keep Oil at $50; But Stability is More Important, says SABIC

Tuesday March 21, 2017

More predictions on Monday of flat oil prices were forthcoming, but with a unique twist: in forecasting that crude will remain in the $50 range for the next five years, Rusty Brazeil, president and CEO of RBN, said that it is due to the "ingenious" handiwork of U.S. shale producers.

Speaking on CNBC's Mad Money, Brazeil explained that the Americans are responsible for the current lower prices, and that "If we look forward for the next five years, the forward curve of crude oil in the United States is at $50 flat.

"It's the ingenuity of U.S.producing companies: we've learned how to produce and make money at 50 bucks."

Brazeil further elaborated, "It's the technology that makes it work: you get a lot more hydrocarbon out of each well, [and] we're getting it cheaper per unit because the well costs haven't gone up much at all."

He added that a positive chain reaction could occur if president Donald Trump is successful in lifting some federal regulations, as he promised on the campaign trail:"[this] means they'll be able to make more money, which means they'll be able to produce more hydrocarbons, which means ... perhaps we could make so many hydrocarbons that the price stays low no matter what."

In his iconoclastic way, Brazeil seems to be forecasting a market stability in which low prices are a desirable component, and stability is also something Al-Benyan, CEO of SABIC, thinks should be the prime objective.

Al-Benyan on Monday told CNBC, "it's very difficult to predict what the crude oil price is going to be, but for our industry it's regardless what's the level of the price; of course the higher is better for us, but we need to have stable crude oil price because not only for us in terms of input for cost but also for the output and for our customers.

"In my view, 2017 it's going to remain very positive in terms of really stabilizing the crude oil price....I think we're looking for, if it's $50, $55, $60, we need to stay below the crude oil price in order for us to manage our production costs and also to make sure that our customers are also comfortable, how to deal with the output of our price as well."

It's interesting to note that even though Brazeil and Al-Benyan make their forecasts through radically different lenses, they both indicate that prices aren't going to break out anytime soon, thus contributing to the majority view and running contrary to some experts who think a significant surge is still possible.

Energy lender Arab Petroleum Investment Corp. also has modest price expectations: in a report released Monday it stated that the Organization of the Petroleum Exporting Countries' (OPEC) two month old initiative to reign in production won't be enough to nudge crude prices above $60 this year.

It also stated that "We expect OPEC to maintain the agreed production quota at around 32.5 million barrels a day for the rest of the year."

Although the cutbacks are increasingly being viewed as a bust in the analytical community for their failure to significantly boost prices (something Saudi Arabia initially said was of paramount importance as it prepares to sell a portion of their Saudi Aramco in an IPO), Khalid al-Falih, energy minister for the Saudis, recently told Bloomberg that he is not concerned about current market fluctuations because the combined efforts of OPEC members are slowly but surely driving fundamentals "in the right direction."