Shell’s chief executive has said there are signs the price of oil could start to recover and warned that prices may spike if they stay low for a long period.
Ben van Beurden told a conference there are four “signposts” for short-term oil prices: demand for oil in the global economy, the behaviour of the Organisation of the Petroleum Exporting Countries (Opec), the US shale industry, and the cost of production.
The signals on global demand are mixed and there is no sign that Saudi Arabia, Opec’s biggest producer, will relent on its policy of maintaining production to hold on to market share, he said.
US shale producers have proved more resilient than expected after the oil price plunged but could struggle to raise new finance. The cost of production in the wider industry has fallen since the end of last year, helping to support profit margins so that “the industry will reset itself”, he said.
Van Beurden said: “I see the first mixed signs for recovery of oil prices. But with US shale oil being more resilient than we originally thought and a lot of oil still in stock, it will take some more time to rebalance demand and supply.
“After this happens, Saudi Arabia’s strategy and cohesion within Opec will remain key uncertainties. If they get it right and find a new balance, prices will recover – although it remains uncertain how fast prices will recover and at what level they will settle.”
Oil prices have collapsed over the last year due to heavy oversupply. Benchmark Brent crude has fallen to below $50 a barrel from a high above $115 in June 2014.
Saudi Arabia and Iran are at odds over Opec’s strategy. Iran wants the Saudis to cut production to support prices but at the same time wants to increase its own production to take advantage of a thawing in its relations with the west.
Van Beurden said if Opec did not find a way to accommodate its members’ interests, the resulting prolonged low prices could store up trouble as US shale production stalls, capital spending cuts bite and spare capacity is used up.
“This could cause prices to spike upwards, starting a new cycle of strong production growth in US shale oil and subsequent volatility,” he told the oil and money conference in London on Tuesday.
He said Shell was planning for a longer period of low oil prices but that in the long run demand would increase because more people were living in cities and buying their first car or fridge.
Van Beurden reiterated Shell’s support for a viable carbon pricing system. The Anglo-Dutch producer and five other energy companies have written to the United Nations climate change conference, which takes place in Paris from 30 November to 11 December, calling on governments to introduce carbon pricing systems where they do not yet exist.