Al-Falih says oil sector needs prices over $50 to sustain investments

13 July 2016

Saudi energy minister says minimum price required to maintain balance over long term

The oil sector needs a crude price of over $50 a barrel to sustain investments over the long term, according to Saudi Energy Minister Khalid al-Falih.

Brent crude recovered from the start of the year to trade above $50 a barrel for much of June but has been trading below that level since early July.

“We need a price higher than $50 to achieve a balance in oil markets in the long term,” Al-Falih told Germany business newspaper Handelsblatt.

“And just as $50 is too low to sustain investment, prices in excess of $100 are too much. The optimum lies somewhere in between,” said Al-Falih, who earlier this year took over from veteran oil minister Ali al-Naimi.

Saudi Arabia has significantly increased its crude production since prices began to fall in the second half of 2014, choosing to retain global market share rather than shore up prices. The kingdom produced an average of 10.24 million barrels a day (b/d) in May, according to Opec, compared with 9.69 million b/d over 2014.

Al-Falih said that markets were rebalancing due to drops in the US and Canada – where crude supply has dropped by about 1 million b/d – but it would take a long time before balance is achieved.

“At the same time, demand has recovered, meaning that supply and demand are now more balanced again. But there are still excess stocks on the market – hundreds of millions of barrels of surplus oil. It will take a long time to reduce this inventory overhang,” said the energy minister.

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