TEHRAN(Dow Jones Newswires), September 24, 2008
Oil prices below $100 a barrel would make international investment in the upstream oil sector less attractive and lead to a decline in oil revenue that could reduce Iran's investment in its oil industry, a top Iranian oil official said Wednesday.
"When the price of crude oil is coming down, it means investment in the upstream shouldn't be so attractive than it would at $100 or more," Ali Asghar Arshi, Executive Director for International Affairs at the National Iranian Oil Co., told Dow Jones Newswires in an interview in Tehran.
Iran's windfall oil revenues have allowed the Islamic republic to considerably increase investments in its own oil sector at a time when sanctions over the country's controversial nuclear energy program have significantly reduced its ability to tap global financial markets.
The National Iranian Oil Co. plans to spend some $16 billion investing in oil and natural gas projects this year, up from an average $12 billion a year for each of the past three years, according to figures provided by the Iranian Oil Ministry's department of planning.
"The cost of construction right now, especially in the oil and gas industry, has tripled. Therefore if revenues from oil sales are reduced, it may definitely affect our investment. There is no doubt about that," Arshi said, when asked whether oil prices at less than $100 a barrel would reduce Iran's investment in its oil sector.
The senior oil executive, who is not an Organization of Petroleum Exporting Countries delegate, but is influential in the Iranian oil industry, said he believes oil markets are oversupplied.
"In terms of supply and demand, my view is that the market is oversupplied right now," Arshi said, adding that he believes some OPEC members would consider cutting oil output at the organization's December meeting in Algeria if crude oil prices fall below the $90-a-barrel level.
"If prices fell below $90, definitely some OPEC members would like to consider cutting output to protect prices in order not to fall further, and go back to $100 or more than $100 (a barrel)," he said.
Speaking as oil prices maintained their rise back above $100 a barrel, Arshi said the rebound in crude prices is mainly due to renewed confidence in the world economy after the U.S. government decided to help credit markets with its $700 billion plan to buy troubled mortgage assets.
"The recent fall in oil prices was because of weakening demand and the economic situation. The reaction to this wise decision was that crude oil and gold prices rose. The price of commodities is going up," the senior oil official said.
"If they implement (the plan) very well and financial institutions go back on the right track, then the price of crude oil would be considered going above $100 a barrel because the market is confident.
"If the economic situation is getting well, prices will go well above $100," Arshi added.
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