Consultant: Oil prices may soar

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After months of doom and gloom in the oil industry, at least one top Norwegian consultant is upbeat and urging others to be so as well. Jarand Rystad, managing partner of Rystad Energy, thinks prices will soar up to over USD 100 a barrel by 2020, just as the state government resorts to withdrawing oil revenues from its huge sovereign wealth fund to help meet the its budget.

Norway's oil industry has generated huge amounts of money that's been deposited in the country's Oil Fund. Now that fund is huge and its sheer size often seems to be viewed as a problem instead of resource. Debate over the use of its resources is constant. PHOTO: Statoil/Harald Pettersen

Prospects for Norway’s oil industry are much brighter than most people think, according to one high-profile oil industry consultant. PHOTO: Statoil/Harald Pettersen

Newspaper Dagens Næringsliv (DN) reported Friday that Finance Minister Siv Jensen, who long has advocated more use of oil revenues, has now taken an historic step. She became the first Norwegian finance minister ever to take money out of Norway’s so-called “Oil Fund.”

The first withdrawal came in January, DN reported, and it amounted to NOK 6.7 billion (USD 779 million). The finance ministry confirmed the transaction in an email to DN this week.

With oil prices currently just a third of what they were early last year, much less money is flowing into the state treasury and the oil fund itself, where the country’s oil revenues are mostly set aside and invested for future generations. Since the fund was created in 1996, with a stated purpose of funding Norwegians’ pensions, nearly 3,500 billion kroner has been deposited, and the fund itself has swelled through investment returns to become the largest sovereign wealth fund in the world.

The recent economic downturn means the time has come to dip into the fund, to avoid any budget deficit. The move doesn’t come as any surprise, because it was predicted during last fall’s state budget negotiations. And even though Jensen and the country’s conservative coalition government were criticized for using more actual oil money in the budget than ever before, Jensen has been quick to point out that the amount itself is well under the limit that’s been imposed for years: 4 percent of the value of the fund itself.

Jarand Rystad, a high-profile oil consultant in Norway, is upbeat about the business and thinks oil prices will return to levels over USD 100 a barrel. PHOTO: Rystad Energy

Jarand Rystad, a high-profile oil consultant in Norway, is upbeat about the business and thinks oil prices will return to levels over USD 100 a barrel. PHOTO: Rystad Energy

If oil consultant Rystad of Rystad Energy is correct, Jensen’s withdrawals may be short-lived. Speaking at a conference organized by law firm Kluge in Norway’s hard-hit oil capital of Stavanger, DN reported that he stressed brighter days ahead and that oil prices will rise to around USD 105 a barrel within the next four years.

He clearly rallied the oil troops at the conference, which DN described as more like a revival meeting. “When someone comes up to you and asks with a meaningful gaze how it’s going in the oil industry, you can answer, ‘it’s going great!’ Rystad told his audience. “We have never had higher demand, the product has never been more competitive and we had enormous growth last year.” His audience found that amusing, but Rystad was serious. He’s convinced prices will rise again.

The outlook, he contends, is better than most people think. Since investment levels are currently low (“too low,” in his opinion), demand will soon outstrip supply. Costs in the industry have also been cut dramatically and production in older fields is likely to decline.

He’s warning the industry against making too many cuts, both in investment and staffing. When the market turns around, he fears, many companies will lack experienced personnel to take advantage of it.

“This downturn is more brutal than the one in 1998-2000,” Rystad told DN. “This time (the cuts) are much worse, and that’s worrisome.” Berglund

  • inquisitor

    “…he stressed brighter days ahead and that oil prices will rise to around USD 105 a barrel within the next four years.”

    Nope. Only, maybe if another 9-11 and/or war interferes with supply.
    Other than that…welcome to the global depression.

  • Jen

    2020….how many companies can withstand continuing losses until then???

    Plus, of course the oil consultant needs to say positive things, otherwise no company will hire him for “possible new business opportunities”.

  • Interrogative

    If had actually invested some of that oil fund in it’s own country and people instead of playing the stock market etc, Norway wouldn’t be the one trick pony it is today. Lower taxes to encourage entrepreneurialism , better educational facitliies, investing in a more diverse employment base.

    What use are leases on bricks and mortar on London’s Regent Street to the Norwegian youth of today ? Other than knowing one can take ‘sick leave’ and expect generous state handouts for doing nothing.

    • inquisitor

      I do believe that there will not be many places where one can invest and make a profit in the next ten years.

      Gold is now getting a kick and certainly Norway should have bought and kept some gold in the past when it was low.
      But I actually think gold will also begin to sink to very low levels in the near future. I do not think it will sustain.

      It is my opinion that all investments of any kind are going to be crap. When this happens and with a run-up to WWIII clearly being agitated by the west and NATO, then the best of crap investments will end up being the crap American dollar, crap treasuries and buying US crap debt. Not because this is a sound investment in the traditional sense, but because one is buying into a warring, military empire…like Rome…when all else is totally useless as an investment. You are merely getting the best crap of the crap that is available in this regard.

  • eMalanga

    I cannot see any analysis used to support this assumption. Besides 2020… Anyone who still dreams that oil will hit the $100 mark might just be having a pipes dream.