INDUSTRY NEWS
Bernstein: Oil May Jump
Past $150 on Chronic
Underinvestment
A
8
supply shortfall is lurking
should major oil companies
continue to underinvest in
exploring for new oil reserves, and
this “chronic underinvestment” is
setting the stage for the next super-
cycle that could see oil prices soar
to $150 a barrel or more, analysts
at Sanford C. Bernstein & Co said.
Investors clamoring for cash returns
on their investments in lieu of
increased capital expenditures may
soon backfire, as new oil reserves
may be unable to keep up with
demand, according to Bernstein
analysts. “Investors who had egged
on management teams to reign in
capex and return cash will lament the
underinvestment in the industry,” the
analysts said in a note, as carried by
Bloomberg. “Any shortfall in supply
will result in a super-spike in prices,
potentially much larger than the
$150 a barrel spike witnessed in 2008.”
“If oil demand continues to grow
to 2030 and beyond, the strategy
of returning cash to shareholders
and underinvesting in reserves will
only turn out to sow the seeds of
the next super-cycle,” said Bernstein.
“Companies which have barrels in the
ground to produce, or the services
to extract them, will be the ones to
own and those who do not will be left
behind.”
A
fter the oil price crash
of 2014, oil companies
slashed exploration capital
expenditure. Now that oil prices
have recovered, those companies are
looking to reward shareholders with
dividends and share buybacks to show
that they have successfully come out
of the price slump. The lowered capex
in exploration, however, is depleting
the oil industry’s reserves and reserves
replacement ratios. According to
Bernstein, the reinvestment ratio
in the industry is the lowest in a
generation, which is setting the stage
for a super-spike in oil prices; prices
may even beat the record of $147/
barrel from 2008.
By Tsvetana Paraskova via Oilprice.
com