$50 is not a crisis

Price stability will grease the wheels of major deals so Gulf players are ready for the demand upswing.

In the rollercoaster six months just ended, a terrible rot appeared to have set in. Not the nemesis of a low price environment – everyone knew that was in the post at some point – rather the equally damaging fog of uncertainty.

When the oil price collapsed, the contagion of fear spread through the industry like wildfire. Now, it seems that some stability has finally arrived. Although prices are below the $70 a barrel threshold OPEC members pine for, it seems to have at last found a rather stable level.

In March the OPEC reference basket surged $4.37, or more tellingly, up 10.5% to average out at over $46. The movements were dominated by developments in equities and other economic indicators, but prices continued to strengthen in early April, and, at the time of going to press, stood at a little over $49.

At and around $50 the region is undoubtedly making money, and more importantly, so much so it can continue to fuel economic growth. It may not be as rampant as we have seen in the last five years, but growth will be there.

This economic activity, as well as industrial developments and population growth across the Middle East will continue to demand more power, and where there’s power, there must be fuel.

In a dreary export market, local energy demands may well prove decisive for upstream companies, which will continue to get work to enable regional governments to build on the foundations laid down between 2000 and 2008.

The notion that global energy needs will be met by anything other than oil and gas remain fanciful, and economically less viable. A rocky patch is what we are in, and I’m confident that the overriding factor – the world needs more energy – will out in the end, and the $70 barrel will be a fixture of our collective futures. Indeed, further OPEC cuts may well have it here by year-end.

In the meantime, a stable market is the best thing for business in the region. Many companies will have already made the toughest decisions they will have to this year, whether it be scaling back developments, or reducing head-count.

The months ahead may need to be lean, but most importantly they should also prove stable, and profitable.

Daniel Canty is the group editor of ITP Business’ energy titles.

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