Gazprom CEO Sees Oil at $85 A Barrel by Year's End

LONDON (Dow Jones Newswires), Jun. 10, 2009

There are "sufficient objective grounds" to believe the price of oil will hit $85 a barrel by the end of 2009 and, if capital investment isn't restored, it may hit $150, said Alexei Miller, chief executive of Russia's state-controlled natural gas monopoly OAO Gazprom (GAZP.RS), on Wednesday.

Miller said the current price level is "not a technical correction or accidental fluctuation, but a return to a pre-crisis trend." Oil prices reached $71 a barrel, double the price at the end of 2008, yet this is still well below the peak reached in July 2008.

According to a transcript of a speech at a conference in Porto Cervo, Italy, Miller blamed "financial transactions in the oil markets" as opposed to the "physical market" for an "inadequately low prices as we witnessed earlier this year."

Miller said the volatility of the market will reduce production capacities and oil supply on the market in three to five years, while investments into geological exploration and production in the global oil and gas sector will fall by over 20% in 2009.

If capital expenditure isn't restored, the forecast of $150 a barrel of oil in two to three years "will come true," he said.

A year ago, Miller cited a major imbalance between demand and supply of hydrocarbons by 2012 as the factor behind an oil price rise to above $250 a barrel.

This forecast has not become reality yet, given that the economic crisis gained momentum and exerted a powerful impact on the global energy market, he admitted.

"Does this mean that our forecast was unrealistic? Not at all," the head of Russia's gas and oil giant said. Nobody has resolved the "2012 supply gap," which "means prices may even jump over the $250 hurdle," he added.

To avoid volatility, Miller proposed the predominant use of long-term oil-supply contracts, which "can be concluded in the framework of exchange trading".

He argued that long-term contracts, like those used in the gas industry, will restrict the "impact of speculative capital on the oil price" and will help to drive out "economically unjustified intermediaries."

Echoing the calls of Russian President Dmitry Medvedev, Miller called for reform of the "existing system of linking oil prices to only one currency."  

Copyright (c) 2009 Dow Jones & Company, Inc.


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