ExxonMobil chief executive Rex Tillerson and Saudi Arabia's energy minister Khalid al-Falih
The head of the world’s biggest listed oil company offered a sharp rebuke to Opec’s most powerful member Saudi Arabia on Wednesday, saying fears of a supply crunch brought on by savage spending cuts were overblown.
ExxonMobil chief executive Rex Tillerson said high stocks and US shale output would help prevent a blowout in prices and cushion the impact of declining investment.
“I don’t necessarily have the view that we are setting ourselves up for some big collapse in supply within the next three, four, five years,” he told industry executives and officials at the annual Oil & Money summit in London.
“We have confirmed viability of a very large resource base in North America … that serves as enormous spare capacity in the system,” he added. “It doesn’t take mega-project dollars and it can be brought on line much more quickly than a three to four-year project,” he said.
A sharp downturn in prices has seen oil companies cut spending to the bone and slash almost a trillion dollars of investment in new projects, raising concerns about the long-term impact on supplies and ultimately prices.
Saudi Arabia, the world’s biggest oil exporter, has said this is the main reason it is working with Opec members and other big producer nations on a deal to curb output and raise prices, though its own economy has been hard hit by the slump. Since reaching a provisional agreement to curb production in Algiers last month, oil prices have rallied by around 15 per cent to trade above $50 a barrel.
In comments made minutes before Mr Tillerson’s address, Kahlid al-Falih, Saudi Arabia’s energy minister, told the same conference that the depth of the oil market downturn was threatening future supplies and that once large stocks of oil built up during the rout were worked off, a supply crunch may emerge.
“On the trajectories of supply and demand that are coming … there will be potentially a shortage of supply,” said Mr Falih. “We want to signal to the market by [the] gentle action of Opec … that we want to work down the inventory and get investments to resume.”
Having unconventional supplies decline the way they have been since 2015 was “unhealthy”, Mr Falih said, who welcomed the return of US oil drilling activity as prices have recovered from their lows in January of less than $30 a barrel.
“It is striking that they are at such odds,” said Neil Quilliam, a senior research fellow at London-based think-tank Chatham House, referring to the opposing stances of Mr Tillerson and Saudi Arabia’s Energy minister.
Mr Tillerson’s view also differs with many other industry executives, who share Riyadh’s concern of a supply shortfall in the coming years.
Echoing the Saudi energy minister, Patrick Pouyanné, the chief executive of French oil company Total, said supplies could fall short by 5 to 10m barrels per day by the end of the decade because of under-investment.
“We are facing a situation where we do not invest enough,” he told the same conference, citing the fall in industry-wise capital expenditure from $700bn in 2014 to $400bn this year. “This is not enough to provide the future supply.”
Saudi Arabia changed the direction of its oil policy in September, deciding to support production cuts after two years of refusing to do so.
Mr Falih said the time was now right for Opec to retake control of the market, arguing that letting prices slide for two years was causing “unhealthy” damage to future production.
The downturn in the oil price has hit Saudi Arabia’s economy hard and forced Riyadh to launch a radical transformation.
On Wednesday, Saudi Arabia launched its first major international bond, raising $17.5bn as it tries to maintain levels of social spending during the downturn.
Neil Hume, Anjli Raval, Andrew Ward and David Sheppard
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