DUBAI: Low oil prices discourage producers’ investment in new capacity and, if they sink too far, promote oil market volatility, Saudi Arabian Oil Minister Ali al-Naimi said yesterday.
“The reality is very low oil prices are not sustainable. In fact they invariably lead to volatility and subsequently higher prices...” Naimi said in a speech in Islamabad, a copy of which was made available to Reuters in Dubai.
Naimi said low oil prices can also discourage producers’ investment in new energy supply.
“Prices must be high enough to offer an adequate return to producers without hurting consumers,” he said.
Oil prices slipped below $59 yesterday as doubts over Opec’s determination to push through output cuts weighed, while high fuel stocks in consumer countries offset the impact of a new attack on Nigerian oil facilities.
Opec President Edmund Daukoru said on Sunday all Opec members will fully implement their production cuts, while market conditions may force Opec to cut output further next month.
Prices have slid 25% since a July peak partly because of high fuel stocks in top consumer the US.
“We have seen that there us a strong negative correlation between low oil prices and the ability of producers to continue supplying energy to growing economies. The low oil prices of the 1980s and 1990s offered little incentive to invest in the energy industry,” Naimi told the 2nd World Islamic Economic Forum.
“Some individuals also mistakenly believe that economic growth is inversely related to the price of oil or to the amount of oil a country imports. Recent experience has shown this is not true,” Naimi added.
“Neither high prices nor substantial energy import dependence has been a major impediment for ... (consumer countries’) economies,” he said.
“Some say that the preeminent goal of energy policy should be to keep oil prices as cheap as possible in the mistaken belief that low oil prices are a precondition for stability and sustainable economic growth. Experience taught us that in fact, the opposite is true.”
He reiterated that Saudi Arabia, the world’s largest oil exporter, is committed to supply the market with additional oil in times of need to “maintain short-term price stability”.
“Promoting reliable supply and stable prices are the cornerstones of Saudi Arabia’s oil policy. Our interests and the interests of all countries are best served when these two conditions are met,” Naimi said.
Naimi said he saw great opportunities for investors to research, develop and commercialise new resources of energy which can help supplement conventional energy resources. – Reuters |
