Crude oil prices at the weekend continued to climb for the third week in a row, with Light Brent crude, which had not settled above $60 since December 24, rising by $2.24 or 3.8 per cent to settle at $61.52 a barrel, marking the highest price at which it has been sold this year.
Similarly, US crude oil futures rose $1.57 or 3.1 per cent, to settle at $52.78 a barrel, up about 2.1 per cent for the week.
The rise in oil prices was fuelled by spending cuts by oil companies and further declines in the number of active US oil rigs, which fell by 98 to 1,358 on Friday, representing 406 rigs less than the figure recorded the same time last year, according to weekly data from Baker Hughes Inc.
According to the oilfield drilling contractor, the number of US active rigs for oil and gas was at a five-year low as at the week ending February 6.
Speaking on the likely trajectory of oil prices in the short to medium term, Chairman and Chief Executive Officer of International Energy Services Limited, Dr. Diran Fawibe, told THISDAY at the weekend that the current rise in the price of crude oil was as a result of the strategy of the Organisation of Petroleum Exporting Countries (OPEC) not to cut output so as not to lose market share to non-OPEC members.
He said the OPEC strategy was aimed at forcing high cost producers of shale gas in North America to curb output so that the market would stabilise.
According to him, OPEC, particularly Saudi Arabia and the Gulf producers that produce oil at a lower cost, used the strategy to force the high cost producers to reduce their output as oil prices sank below their cost of production.
“It is a strategy that was largely being promoted by Saudi Arabia and some gulf countries like the United Arab Emirates (UAE) and it was an attempt to force the US to stop dumping oil into the market.
“But whether it is the best strategy in the current situation is another matter. To my own mind, I feel that it can only work in the short run. Of course, we are beginning to see some evidence of that working squarely against North American shale oil producers, who are now reducing their activities in the market,” he said.
On whether the oil price would recover to $100 per barrel this year, Fawibe said it was very unlikely except there is a major upheaval that disrupts supply from one or two of the major oil producing countries.
“You see, in the past, one of the drivers of oil price in the world market was not just the economic situation in the consuming countries. You may have some major developments in some oil producing countries that will disrupt supply and lead to speculation.
“The speculation in turn, will lead to the rising oil prices. For example, if certain things happen in a major oil producing country that disrupts the flow of oil to the market, it can lead to price escalation.
“But now, because there are so many companies trading oil in the international market, you cannot expect such a thing to happen,” Fawibe said.
“But without such a major upheaval or development, if we leave it to the forces of demand and supply, nobody should expect to see the price of oil hitting $100 per barrel.
“As a matter of fact, one only hopes that it does not remain at $50 to $60 and continues to rise. But the best we can achieve this year is about $70 a barrel,” he added.