What’s happening in the oil and gas sector?

By Andrew Hetherington – Oil prices are hitting their highest level since June, and the prospect of another price spike could prompt a fresh round of supply disruption.

Key points:Exxon Mobil says the prospect that oil prices will reach $100 a barrel is an understatementExxon has warned that it is prepared to wait for a price spike to be “quite clear” by the end of the yearKey pointsExxon is looking to sell up to 4m barrels of oil a dayExxon says it has a stockpile of 4.3m barrels a day and that it will sell oil from its Eagle Ford shale formation as early as the end in February to boost cash flowThe oil price is set to hit its highest level in nearly three years this weekend, with analysts warning that the prospect will force an additional round of price volatility.

Oil prices have hit their highest since June when oil production surged by 50 per cent, prompting the US Energy Information Administration to warn that the US economy could be on the brink of a “significant contraction” this year.

The rally in crude prices came amid signs that the price of oil was headed lower, as well as signs that Saudi Arabia was pushing its economy out of a recession.

But there is a further reason for concern, and that is the possibility that oil could fall to $100 per barrel as the US oil industry struggles to balance its budgets and balance the needs of a rapidly ageing population.

“We’re seeing a lot of uncertainty around where prices will end up in the future, and whether or not they’ll reach $110,” Rex Tillerson, the chief executive of Exxon Mobil, told the Wall Street Journal on Wednesday.

“That’s what we’re seeing right now.

We have some very strong evidence to suggest that that could be quite clear in the coming days.”

He added that the company was “ready to sell as much oil as we can”.

Oil prices are set to reach $104.55 a barrel on Friday, a level that has been near $100 for months.

But a recent study from the US Federal Reserve Bank of Dallas estimated that US oil production could drop by 30 per cent over the next five years.

“The outlook for the US shale oil industry has been severely affected by the recent downturn in oil prices, and recent oil price volatility,” said the Fed.

“Given that the outlook for US shale production is much less bleak than the outlook of oil production, we estimate that shale oil production will continue to decline, even if prices remain high.”

Further, we expect that the future growth of shale oil is likely to be much more restrained than in the past due to limited access to inexpensive oil from abroad, as it would be more costly to export oil to foreign markets than it is to buy oil from domestic sources.

“A Reuters poll of economists from 10 of the world’s biggest oil producers and energy firms found that the biggest concern was that global demand for oil would slow significantly over the coming years, with only a tiny rise in demand in 2030.”

Demand for oil in 2030 could be as much as 40 per cent lower than current estimates, and as much lower as 25 per cent in 2040, according to the research,” said a Reuters report.”

If oil demand continues to decline and prices continue to rise, this would likely result in a reduction in the amount of oil that can be produced in the US, as the demand for imported oil is projected to be significantly higher than the amount that can currently be produced by US shale drillers,” the report said.”

This could have an impact on the future viability of US shale and oil production.