Any shrinkage in production capacity could nudge oil prices higher. Adil Toubia, a senior partner in Energy Capital Group, said he could foresee an increase in prices to between $55 and $60 a barrel by the end of this year.   

Toubia spoke at a panel discussion about energy at the Wharton Global Alumni Forum. Hundreds of graduates and faculty of the Wharton School of the University of Pennsylvania have gathered in Dubai for the two-day event. Toubia’s firm is a private equity fund based in Bahrain. 

Global oil production has hovered at around 84-85 million barrels a day, with Saudi Arabia the world’s biggest exporter of crude.  

“If these production rates we’re seeing are to continue, essentially what it means is you need a new Saudi Arabia every two years,” Toubia said.   

However, with oil prices now at a fraction of last year’s peak levels, oil majors are curtailing investments to explore for new oil and production. Publicly traded oil companies in particular, with their focus on quarterly profitability, are reluctant to commit large funds to boost output during a recession.  

In addition, future discoveries of oil are likely to occur mostly in smaller fields, which cost more to develop and which empty out more quickly than the large oil fields such in Saudi Arabia and other members of the Organization of Petroleum Exporting Countries. Toubia believes that this trend toward smaller discoveries will exacerbate short-term capacity constraints.  

The longer-term outlook is brighter, he said. “There area lot of reserves in the ground. The challenge is to get then out.” 

Oil prices tumbled after spiking at $147 a barrel in July. Toubia attributed last summer’s peak prices mostly to speculative buying. Although crude has risen in recent weeks, the price “seems to have stabilized” for the moment, he said. Oil prices closed on Tuesday in New York at $48 a barrel.    

“Violent [price] gyrations are not good for all of us, so let’s hope we don’t see it again.” 

OPEC oil ministers will consider cutting their output quotas when they meet next week in Vienna, Austria. The group produces roughly 40 per cent of the world’s crude.  

Shaikh Nawaf Saud Nasir Al Sabah, Deputy Managing Director of Kuwait Petroleum Corporation, said he didn’t believe that OPEC was trying to peg prices at a specific level. Kuwait, like the UAE, is a member of the group. 

“I don’t think OPEC is trying to set a price. They gave that up a long time ago” because the efforts were unsuccessful, said Al-Sabah, who participated with Toubia on the Wharton panel. 

  business@khaleejtimes.com