Oil sector must think long-term

Positive news is not always an outright invitation for celebration. In fact, it calls for a little bit of caution and measured optimism.

I am talking about the recent rally of crude oil prices with West Texas Intermediate passing the $80-per-barrel mark and prices generally rising for the past two weeks to reach the highest level so far this year. For the last few months almost all analysts and observers including myself have been saying that prices could soften or just hold their ground at best. Therefore, I see no reason to change this position as the recent rally does not have much to do with changing oil market fundamentals of supply and demand.

For this reason, it is difficult to understand the number of reports that have emerged recently expecting or urging oil producers to go ahead with expansions and projects that have been slowed down, put on hold or cancelled.

Arturo Grimaldi, senior vice-president for Technip, the engineering company, expects the GCC countries to award more than $60 billion (Dh220 billion) of oil and gas projects over the next three years and $21 billion will be awarded in the UAE alone in the next 6-9 months. Moodys, the credit rating agency recently said the GCC countries will witness a substantial increase of 43 per cent in their refining capacity. Although it did not specify a time-frame, the expected increase has been put at close to a substantial 2 million barrels per day in distillation capacity alone. Even Opec Secretary-General Abdullah Al Badri, commenting on the recent price movement, said that member countries have deferred 35 projects but are now reconsidering seven of them.

Gulf News