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Cheap oil to affect global upstream projects

Friday, December 12
Brent prices have slipped below $66 during the past few days, a 5-year low and the OPEC oil basket has lost 41 percent of its value since mid-2014. Some experts predict that oil prices could plunge further to about $50 to $60 by Q1 of next year.

Some countries have announced that lower oil prices will decrease their mid-term production growth pace.

The US President Barack Obama's chief economic adviser Jason Furman said on Sunday that the US will continue to boost oil production but falling global prices will slow down the pace. The United States Energy Information Administration estimated earlier that the U.S. shale oil (tight oil) production soared in 2012 and the growth rate is expected to reach one million barrels per day next year.

In other parts of the world, Bank of America has said the current slump will choke off shale projects in Argentina and Mexico, and will force retrenchment in Canadian oil sands and some of Russia’s remote fields. The major oil companies will have to cut back on projects with a break-even cost below $80 for Brent crude.

According to OPEC's official website, in the medium term, about 117 projects, with an overall estimated cost of some $270 billion, are being undertaken by OPEC Member Countries who produce one third of global oil output. Deutsche Bank estimated in October for oil price targets per barrel that some of the OPEC members require to balance their annual budgets:

Libya: $184, Iran: $ 131, Algeria: $131, Nigeria: $ 123, Venezuela: $118, Saudi Arabia: $104, Iraq: $101, UAE: $81, Kuwait: $78, Qatar: $77.

The OPEC members are the most vulnerable states, because their budgets deeply depend on oil revenues.

Guy Caruso a senior adviser in the Energy and National Security Program at Center for Strategic and International Studies (CSIS) told Trend Dec.10 that falling oil prices would have an effect on global oil investments in the upstream.

"Many new unconventional oil projects in the US and Canada were based on profitability in the $70-80 /barrel range. If prices remain below that range for a prolonged period (6-12 months) capital expenditures will slow down," Caruso who had served as administrator of the U.S. Energy Information Administration (EIA) from July 2002 to September 2008 said.

Parviz Mina, who served as a member of OPEC Long-Term Strategy Committee, told Trend Dec.10 that regarding this fact that OPEC has kept output ceiling level unchanged at 30 million barrels per day, while the cartel's 12 members are producing even more than this level, there is not any positive sight in oil price increase in short term.

"In case the U.S. continue the tight oil production and increase the volume, I think the oil prices would plunge around $60 in 2015," Mina said.

Caruso believes that cheap oil price will affect new production scheduled to come on stream in 2016 and beyond. "In the next year or so US output is expected to increase but at a slower pace than it has over the last several years. Most OPEC members finding and development costs are much lower than the unconventional oil projects in North America and therefore will likely go forward unless broader national budgetary constraints limit the spending allocated to national oil companies," he said. (