Bob Dudley, the CEO of BP PLC (NYSE:BP), says he believes that the 7-month-old slump in oil prices isn't likely to reverse itself for some time, perhaps years, because the problem seems to be deeply embedded in the very economics of oil.
"The fundamental supply and demand does remind me of 1986 a bit, where we could go into a period in this decade of lower oil prices," Dudley told Bloomberg TV on Feb. 3, and that the price of a barrel of oil may go no higher than $60 for up to three years. In 1986 the price of a barrel of oil plunged from $30 to $10 and didn't recover until Iraq's 1990 invasion of Kuwait.
Today, Dudley said, "[w]e do have [oil] stocks filling up around the world. China, which is still growing, for sure, it's just not as much as it did. ... It will be a long time before we see $100 again."
Dudley's saturnine mood wasn't lifted by BP's report the same day of a loss in the fourth-quarter of 2014. His company, the first of the oil majors to report a loss, attributed the decline mostly to accounting deficits caused by the lower value of some of its reserves.
BP's replacement-cost loss, similar to the net income reported by US companies, was $969 million for the period, compared with a profit of $1.5 billion in the fourth quarter of 2013. Softening the blow, but evidently not Dudley's disposition, was the fact that the company's shares rose in London trading immediately after the report became public because BP's underlying earnings exceeded analysts' expectations.
The company also increased its dividend from 9.75 cents to 10 cents per share, and the Russian oil company Rosneft, of which BP owns nearly 20 percent, also showed increased earnings.
But none of that can make persistently low oil prices go away, prompting BP to cut deeply into capital spending just as its fellow oil companies are doing: Royal Dutch Shell, ConocoPhillips, Chevron Corp. and perhaps even ExxonMobil Corp., which isn't announcing its spending plans until March.
Dudley's gloom was evident not only on Bloomberg TV but also in a statement by the company accompanying its earnings report. "We have now entered a new and challenging phase of low oil prices through the near and medium term," he said, adding that he will be "resetting" the company to address "the new reality of lower prices."
The BP chief isn't the only oil expert bearish about the market for crude. On Jan. 26, Gary Cohn, once an oil trader and now the president of Goldman Sachs Group (NYSE:GS), said, "We could definitely get down to $30 [per barrel]."
And the price could stay there for some time, according to Goldman's chief commodity analyst, Jeff Currie, who reported that the demand for oil is slowing down in emerging economies, including China. It was Currie who, a decade ago, accurately forecast that oil would fetch $100 per barrel.
Yet some expert observers are more bullish. On Jan. 26, OPEC's secretary-general, Abdullah al-Badri, said he expects the price of oil finally soon may rebound as the industry cuts investments in new projects. He said oil prices just might go as high as $200 per barrel.
Perhaps more realistically, Claudio Descalzi, the CEO of the Italian oil company ENI, says he expects average world oil prices to rebound before the close of 2015 and begin climbing to $90 per barrel.
By Andy Tully of Oilprice.com. Oilprice has no position in any stocks mentioned. The Motley Fool recommends Chevron and Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.