Oil Prices Will Double Within a Year Even Without Production Cuts, Predicts Analyst

Oil prices will reach at least $60 per barrel even if the OPEC does nothing to curb production, says Malchonov

Oil prices will reach at least $60 per barrel even if the Organization of the Petroleum Exporting Countries (OPEC) does nothing to curb production, a Raymond James analyst told media this week.

Pavel Malchonov pointed out that "Oil prices ought to be significantly higher a year from now even if there is no coordinated production cut by governments," and he predicted that prices will climb to $60 per barrel due to non-member countries adapting to current prices by severely under-investing – which in turn will rebalance the market.

The current crude price slide has seen bunkers pushed down below $150 per metric tonne (pmt) and as low as $109 pmt in some major ports including Rotterdam and Houston. 

Should crude rise to $60 per barrel, IFO380 bunkers would likely rise to be around $250 to $300 pmt.

Another helpful element to the $60 outlook is Chinese oil demand, which Malchonov said is poised to keep growing albeit at a slower pace than in previous years and will boost global demand.

Paal Kibsgaard, CEO of oil services giant Schlumberger, corroborated this outlook by noting that his company is planning significant capital expenditure decreases with regards to exploration and production.

He said, "We still believe that the underlying balance of supply and demand continues to tighten, driven by solid growth in demand and by weakening supply, as the dramatic cuts in exploration and production are starting to take effect."

David Lesar, chairman and CEO of Halliburton, agrees that a price recovery is impending and told Yahoo that third-party surveys indicate a year-on-year decline in service spending of 30-50 percent this year, on top of an estimated 40 percent drop in industry spending in 2015: "We do expect that the longer it takes, the sharper the recovery will be."

Meanwhile, Chevron's 2016 budget represents a 20 percent-plus reduction compared to last year; Hess's preliminary 2016 capital budget is reduced by 40 percent compared to 2015; and Exxon Mobil is cutting spending by 25 percent this year, the lowest level since 2007. 

Malchonov's remarks follow an argument made earlier this week by Goldman Sachs that the benefit of OPEC enacting reduction strategies at this stage would be negligible given the time necessary to enact cuts, the continued large builds in global inventories, and the speed with which U.S. Gulf Coast spare storage capacity is filling.