Is the era of cheap oil coming to an end?

There is no cheap oil in the world any more, the vice-president and spokesman of Rosneft, Mikhail Leontiev, said today. That is why the current decline in oil prices will only be short-term. Leontiev also added that a rise in oil prices in the future will niy encourage companies to invest in long-term projects on extraction of 'difficult' oil at the present time.

"The whole future of oil is very expensive. We need large costs for development, and so on. All the companies have sharply reduced capital investments. They use the oil, which provides the current income. If this period lasts for a long time, about year, we can expect a high rise in prices,’’ Mikhail Leontyev said, expressing confidence that the current situation affects US shale oil, as well as reducing amount of drilling in the United States. 

Sberbank CIB analyst Valery Nesterov told Vestnik Kavkaza that companies around the world prefer to use remnants of oil, as it saves money in the period of low oil prices. "Twenty large projects were launched a year ago, but now only four or five. The matter is that private companies deal with development of oil sites. It isn’t profitable for them to produce oil at a cost of $40 a barrel, including taxes, while they have less expensive oil. Moreover, manufacturers of cheap oil (OPEC) are now increasing exports, and shale developers are lowering the price of technology. Now shale oil is extracted in record amounts at about $50-$60 a barrel," he concluded.

Nesterov underlined that no one can identify the moment of transition from an overabundance of oil to its deficit. "There is a general understanding that the emergence of the Iranian factor postpones the return of prices to an acceptable level for the producers – about $70-$80 a barrel.