Maersk CEO: Oil Above $55 Is A Long-Term Inevitability

(Bloomberg) -- After testing a 12-year low, the price of oil simply has to go up.

That’s according to the chief executive officer of shipping and oil giant A.P. Moeller-Maersk A/S, who says 2015’s average crude price of $54 a barrel is too low for the industry to produce enough oil to satisfy global demand.

“In order for the world to be supplied with oil, it’s not enough that Saudi Arabia produces,” Nils Smedegaard Andersen said in a phone interview on Wednesday. “The world will need oil from places where production costs are higher. And therefore we expect the price of oil must go up.”

Brent crude, which cost about $115 a barrel less than two years ago, this year dipped below $30. The plunge has forced the industry, including Maersk’s oil unit, to cut jobs.

“When the price was $110 a barrel we had a clear expectation that it would go down, but we certainly never imagined it at $30,” Andersen said. “Exactly where the right price is depends on how much cost can be taken out of production. But the price definitely needs to be higher than the average of 2015.”

Though the industry has scaled back, Andersen says his conglomerate wants to make oil acquisitions. Last year, Maersk agreed to buy some onshore assets from Africa Oil Corp. It didn’t find any suitable targets in its favorite area, the North Sea. That turned out to be “lucky,” given the subsequent decline in prices, Andersen said.

Estimates compiled by Bloomberg show analysts see a barrel of Brent costing about $49 in the first quarter of 2017. But then again, this time last year they thought oil would reach $55 a barrel in the first quarter of 2016.

“We are looking in general at what’s on the market, but are obviously cautious in not buying something that’s too expensive or which has a too short production life,” Andersen said. “In the long term, we think that projects with break-even of $45 to $55 would make excellent transactions.”

--With assistance from Mikael Holter.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net.



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