Davos 2015: Oil Chiefs feel Chill Wind of Uncertainty over Price

Big 5

The collapse of crude prices is spreading uncertainty among executives, whether they lead companies that stand to suffer as a result of lower prices, or to benefit.

At the World Economic Forum in Davos, oil companies, many of whom have announced cost cuts, tried to put a brave face on the situation.

Speaking at one of the forum’s opening sessions on Wednesday, Patrick Pouyanné, chief executive of Total, the French oil company, was philosophical about the slide in oil prices, which have more than halved since the summer. “The cycle will come back and the price will come back higher again,” he said.

Mr Pouyanné also told the Financial Times this week that Total would “weather the storm” by accelerating and deepening cost cuts. He said those predicting greater fallout “underestimate the capacity of the system, particularly in the US industry, to react in terms of efficiency”.

The main problem, he added, would be the continued availability of financing to companies that, unlike Total, were highly levered.

But Claudio Descalzi, his counterpart at Eni, the Italian energy group, was more forthright about the uncertain outlook, warning in an interview with Reuters TV that prices could eventually rise to $200 a barrel.

He later told a session of the forum that what was needed was a “central bank of oil, like we have in the financial system, to give stimulus and to stabilise [prices]” — a clear reference to the role of Opec, the producers’ cartel, which has declined to cut production.

Oil companies say the lower prices represent an opportunity to diversify into alternative energy and improve efficiency, as they did in the 1990s after prices fell. Majid Jafar, chief executive of Crescent Petroleum, an independent oil company, said: “Everyone is looking at cutting fat but it is not as severe as cutting into muscle and bone — at least not in the traditional oil producing areas like the Middle East.”

Attendees of a working dinner for the oil and gas community on Tuesday evening said the oil group and service company executives arrived wondering whether their joint initiatives on attracting skilled staff or on innovation were still relevant given changed market conditions. But they concluded that long-term planning was still important.

In the long term, the industry would have to “invest a huge amount of money” to cope with the predicted high demand for oil in 2030, Mr Pouyanné said.

Kenneth Rogoff, the Harvard economist, said the positive effect of lower oil prices would be “pretty big within a year and people are underestimating how much it will help” stimulate the global economy.

Among industrial consumers of oil, however, the price slide is seen as a potential windfall only for those companies that work on a shorter term cycle.

Source: The Financial Times