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Oil Price Recovery Likely to Continue, Say Company Executives

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LONDON—Oil prices, which earlier Thursday broke through a key psychological level of $50 a barrel, are likely to continue recovering into next year as supplies tighten, but that recovery is still fragile and the path ahead is rocky, the chief executive of Premier Oil PLC said.

“We’re in a little bit of an upswing at the moment and everybody’s got a smile on their face because we might be at $50 a barrel. But two weeks ago we were at $40 and falling. It’s not a very helpful backdrop to plan a long-term business,” Tony Durrant said in a telephone interview.

The oil and gas sector has been rocked by the rout in oil prices that have more than halved from a mid-2014 high of around $115 a barrel to a low of $27 in January. Oil prices have climbed around 15% this month largely on talks of a potential output freeze among major producers.
The length of the downturn has forced oil companies to slash around $1 trillion in spending on new oil and natural gas output from the shale fields of Texas to the deposits in the North Sea, according to energy consultancy Wood Mackenzie—a factor that is expected to lead to a big drop in oil supplies and higher prices, executives and analysts say.

That drop in investment is still being played out across the industry as companies continue to slash investment in new and current operations, said Mr. Durrant of Premier, one of the U.K.’s largest independent oil companies with operations from the U.K. North Sea to the Falkland Islands.
“Every day of every week I’m talking to our joint venture partners around the world and I hear people still canceling projects and discretionary spend today. Inevitably it will have an effect on supply,” he said. “I believe we will have a much tighter market looking forward into 2017,” he added.

Earlier in the week, Robin Watson, the CEO of oil services company Wood Group PLC, said the end of low oil prices could be in sight.

“It certainly feels like we’re around the bottom,” he said. “We were quite encouraged with where the oil price was in the second quarter, though it did then reduce over the course of July, so confidence remains fragile.”

Oil services have been the hardest hit by the fall in oil prices as they rely on oil companies moving ahead with investments on projects for their revenues.

TAGS: Oil, Gas, Energy, Operations

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