Shell expects oil price recovery to take several years

Thu Jul 16, 2015 7:30am EDT
 
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By Ron Bousso, Karolin Schaps and Dmitry Zhdannikov

LONDON (Reuters) - Royal Dutch Shell (RDSa.L: Quote) expects oil prices to recover gradually over the next five years, with progress slowed by persistent global oversupply and receding Chinese demand growth.

The Anglo-Dutch energy giant is betting on crude rising to $90 a barrel by 2020, a key assumption in its move to buy rival BG Group BG.L for $70 billion to help transform it into a leading player in the costly deepwater oil production and liquefied natural gas (LNG) markets.

"We are not banking on an oil price recovery overnight. It will take several years but we do believe fundamentals will return," Andy Brown, Shell's upstream international director, who oversees the company's oil and gas production outside North America, told Reuters in an interview.

"Until such time, we, like other companies, will have to make sure we stay robust," he said, referring to deep spending cuts taken by oil companies in recent months in the face of a near-halving of oil prices since June last year.

A rise in global supplies, mainly due to a sharp increase in output from U.S. shale, has weighed on oil prices.

In the nearer term, Shell expects Brent crude oil LCOc1 to show only a modest recovery from today's $58 a barrel, with 2016 prices forecast to average $67 a barrel and $75 a barrel in 2017, based on the company's BG offer.

Oil companies rarely reveal the price forecasts that underpin their future strategies. The chief executive of Shell's rival BP (BP.L: Quote), Bob Dudley, said recently he expected oil prices to remain low for "a couple of years most certainly."

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Shell's company logo is pictured at a gas station in Zurich April 8, 2015.  REUTERS/Arnd Wiegmann