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.
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.
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