Analysts see prolonged crude slump
A PTT attendant fuels a car at a station on Phetkasem Road. Some analysts believe crude oil could find an equilibrium between US$80 and $90 a barrel. PAWAT LAOPAILARNTAKSIN
Energy experts say an optimal oil price should be between US$80 and $90 a barrel but the market will have to wait some time for prices to rebound.
The most recent plunge in crude prices has caused worldwide concern, with the Dubai reference price falling to $42 a barrel, its lowest level in six years at the end of August before sharply rebounding to $49.45 on Tuesday.
Global crude prices began to decline in the second half of 2014 and ended the year at about $50 a barrel, down from copy05 at the end of 2013.
The weakness of the large economies has shaken the world, with China's stock market rout dragging down trading boards globally.
Experts say the current downturn in oil prices will probably last longer than the previous one.
In 2008, the oil price fell to $35 a barrel from copy47 within two months as the subprime crisis unfolded in the US. It took two years for the price to rise back above copy00.
The current downswing could last longer than two years, analysts say.
"It is worse than the previous oil price crisis," said Petroleum Institute of Thailand director Siri Jirapongphan.
"In the previous decrease we had China ready to absorb excess supply, to support the whole world, therefore it didn't matter how long the US continued to sink into the black hole, as the euro zone should continue to take time to solve its public debts. But now that China is also showing signs of weariness, no one can help us."
Mr Siri said global oil demand stood at 85-90 million barrels a day for a long time, but supply gradually increased as demand decreased, leading to the price collapse of early August.
The economic slowdown could translate into declining energy demand in line with decreasing spending power, but the supply side of the major oil-exporting countries remains intact.
"Even worse, Iran just recently resumed its exports of 2 million barrels a day after the global market agreed to lift sanctions, meaning more excess supply in the global market," Mr Siri said.
"No one knows how long it will last, but if you are in this business you have to be flexible to overcome the hard times."
Mr Siri cast doubt on the possibility of prolonged $40-a-barrel oil, as resources that are expensive to exploit such as shale gas, oil sands and deep-sea oil will be required to halt production. At the same time, crude oil sources will be depleted soon as well.
Oil producers will have to cut their output at some point to retain margin, at which time the oil price is likely to rebound to a level that permits explorers of unconventional resources such as shale and oil sands to resume production.
The production cost for unconventional resources is roughly $60 a barrel. Mainstream sources such as Middle East oil and gas, the world's biggest source of output, have a production cost of $35 to $40 a barrel.
"It is natural that the conventional and unconventional resources will find a balancing point at $80 or $90 a barrel," Mr Siri said.
"At that price, either conventional or unconventional resources can survive and resources will last longer and allow us to try new technologies."
He called for business operators to invest now in energy-saving projects, saying investment costs for such equipment have become cheaper in line with decreasing demand.