Friday, May 18, 2012
LONDON (Dow Jones)--High oil prices will be sustained in part through increased social spending by Middle Eastern governments in the wake of the Arab spring, Total SA (TOT) Chief Economist Pierre Sigonney said Friday.
A wave of uprisings against long-entrenched rulers in North Africa and the Middle East last spring, which led to the overthrow of Moammar Gadhafi, means that the region's leaders will have to spend more of their oil revenues on social programs in an attempt to keep a lid on popular discontent.
Because countries like Saudi Arabia and leading members of Organization of Petroleum Exporting Countries are influential, this will likely translate into hawkish production decisions by the group.
"These governments will be defending much stronger prices than expected three years ago," said Sigonney.
The French major also sees an oil price floor of around $90 a barrel, sustained largely by the high cost of unconventional crude production. "We don't expect oil to go much below $90 a barrel," said Sigonney.
Because an increasing amount of crude is supplied from unconventional sources like deepwater wells far offshore, high prices are needed to sustain investment in these sorts of projects.
A sustained fall below $90 a barrel would lead to companies pulling out of deepwater exploration, with a consequent drop in supply, which in turn would only serve to drive prices up again, said Sigonney.
-By Alexis Flynn, Dow Jones Newswires, +44 207 842 9471, alexis.flynn@dowjones.com
(END) Dow Jones Newswires
18-05-12 0918GMT
