28 September 2017, Sweetcrude, Lagos — Royal Dutch Shell Chief Executive Officer, Van Beurden, has said it will not be “unreasonable” to forecast oil price at $60 per barrel at the end of the decade.
Brent crude rose by 0.38 percent to trade at $58.66 a barrel inWednesday Asia trade. It hit a 26-month high on Tuesday, while U.S crude was higher by 0.5 percent at $52.14 at 12: 00pm. OPEC’s daily basket price as at Tuesday was $56.43 compared with %55.62 on Monday.
Beurden said forecasting oil prices in the short term was “very difficult” however, he still expects gains.
“I do think oil prices are going to go up over time as a result of the tightening of the market,” he said.
“It’s not unreasonable to expect that if you want to make financial projections going out in the future, you want to make projections around $60 oil by the end of the decade”, he added.
According to him, growth in oil demand has been fairly consistent, increasing approximately by 1.6 million to 1.7 million barrels per day, with exception of outlier years affected by events such as financial crisis.
“It’s a mix of OPEC, it’s shales, it’s large complex projects and they each have their own dynamic in terms of response time to prices…And on top of it, there’s a lot of sentiment that is feeling the markets,” he said.
However, Buerden sees more free cash flow with oil at $60 a barrel that at $90.
Free cash flow, FCF is a measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures.
FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.
“Nobody can predict how it’s going to play out”, adding that those in the commodity business needed to be prepared for downturn.
“Therefore, our mindset needs to be building resilience. And you do it with a lower forever mindset,” he said.
He assured that the company would be able to stay afloat and profitable even if oil prices plunged even downwards.
“If you have a strategy that is predicted on really trying to understand what the future of the oil price is going to be, and then betting on it, I think you’re basically betting the company. So you should never have that as a philosophy,” he explained.
Report written with additional information from CNBC