IEA: High oil prices are not good for producers in the long term

IEA: High oil prices are not good for producers in the long term

Fatih Birol, executive director of the International Agency (IEA), has said the recent increase in oil prices may not be a good sign for major oil producers in the medium to long term as it will force consumers to search for alternative sources of energy, leading to a decline in demand.

Birol suggested that the 56% rally in oil prices over the past 18 months had been due to significant growth in demand in 2017 and 2018, as well as a drop in Venezuelan production and that further geopolitical developments could further boost prices in an already tight market.

With regards to Saudi Arabia’s aim of achieving oil prices between $80 to $100, in order to maximise the initial public offering of its state owned Saudi Aramco, Birol said: “There are several major countries that may want the prices to be higher still but…I can say that prices higher than the existing level may not be good news for the producers themselves.”

Furthermore, Birol said higher prices could encourage the US to increase its shale production even more.

The IEA director said: “In my view, higher prices are not good news for oil importing countries like India but strategically, they are not good news for major oil producers as well in the medium and longer term.”

According to Birol, the next 12 to 24 months are set to see a large amount of volatility across the sector.

He added: “Higher prices are not good for the importers, exporters and also for the global economy.”

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