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By Alex Lawler and Dmitry Zhdannikov
October 27, 2011 10:35 AM EDT
An increasing number of oil companies are likely to see $100-a-barrel oil as the new norm, a sign the price floor is moving up over the long run and a trend that could give a boost to stagnant merger activity in the industry.
The long-term price view of oil giants such as Royal Dutch Shell
Since then, the likes of BP Plc
"I think you'll find more and more people in the industry using numbers of $90 to $100 a barrel going forward," BP Chief Executive Bob Dudley said this week, replying to a question on the price BP needs to turn a profit from new projects.
Oil hit a 2011 high of $127.02 in April, not far from its all-time high of $147 in 2008, and was trading at around $112 on Thursday.
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Just three years ago, BP assumed $60 oil in its strategy address to investors.
If oil companies' assumptions of higher oil prices are realised, this will also be bad news for inflation at a time when central banks need to keep rates low to help the fragile global economy.
Shell Chief Financial Officer Simon Henry also mentioned $100 oil on Thursday after the company reported a doubling in third-quarter earnings to $7.2 billion, albeit more cautiously.
"It has been pretty stable and robust above $100 this year in what have not been easy macroeconomic conditions. I can't really give a prediction, but it has stayed strong," he said.
BP's Dudley also declined to give a specific price outlook, saying demand from emerging economies would support the market and said BP was still testing projects at $75. Henry said Shell had a target to generate free cash at $80 oil.
"We believe the price of energy, while it will be volatile, will be strong going forward," Dudley said. "Growth in Asia and the emerging markets continues very, very strong."
M&A BOOST?
Wider acceptance that $100 oil is here to stay is likely to bring some joy back to the mergers-and-acquisitions (M&A) desks at major banks, which have sat empty-handed in recent months.
Sharp price volatility since the beginning of the year has drastically reduced M&A activity, said a banker with a major bank who declined to be identified by name.
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