RIYADH, Saudi Arabia (AP) — The head of the Italian oil company Eni SpA said Sunday that the turbulence in oil prices is unprecedented and is "extremely bad news" for the industry.
Paolo Scaroni, CEO of Eni, told a panel at the Global Competitiveness Forum that the time is ripe for the oil industry to look for ways to ensure more stability.
"Our sector is no stranger to cycles," Scaroni said. "But the turbulence we are currently experiencing — with oil doubling in the nine months to July 2008 and then losing two-thirds of its value in the following six months — is unprecedented."
"It is also extremely bad news for an industry like ours, where a five-year view counts as short term," he added.
Oil prices reached highs of nearly $150 per barrel in mid-July before plummeting around 70 percent due to economic woes and shrinking demand. Three production cuts totaling 4.2 million barrels by the Organization of the Petroleum Exporting Countries have failed to provide lasting support to prices, which on Friday settled at $46.47 after a particularly volatile trading day.
Scaroni said that increasing stability requires several issues to be addressed. He said there should be a rapid, precise and transparent global reporting system for production, consumption and inventories.
"That will form the basis for authoritative forecasting and help prevent groundless alarmism from spooking the market," Scaroni said. OPEC officials had repeatedly attributed last year's run-up in crude prices to speculation, saying that they did not reflect supply and demand fundamentals.
"We also need to cooperate, in the interest of a price stability, which will benefit producers and consumers alike," he added.
In an interview with The Associated Press after the panel discussion, Scaroni said some complex projects in very deep waters and in difficult areas of the world "might be jeopardized at this level of oil price."
He said, however, that Eni and other companies are forecasting a long-term price of around $50, a level that he said is "certainly viable for conventional oil projects."
"Since projects develop their profitability in five, six or seven years, it's not really important what is the price of oil today. What is important is what is your forecast for the long-term," he said.
Some analysts and oil officials have argued that the current low price of crude could undercut investment in projects, which may result in tight supply once demand rebounds.
But the Eni chief said it was difficult to anticipate whether that would indeed happen.
"We have all been surprised by what has happened in the last two years, prices moving up and down so quickly. Certainly it can happen again," he said. "If the industry will continue to invest at a pace which will replace the reserves and the capacity of production, in principle, the market should become more reasonable."
Asked about Libyan leader Moammar Gadhafi's comments last week on the possibility of nationalizing the oil sector in response to low prices, Scaroni played down the prospect.
"We are always concerned when a country where we operate is talking about nationalization. I have the impression, just an impression, that this … doesn't look like being a decision or a plan or something like that."
Some analysts said the remarks were just Gadhafi's unique way of calling attention to the difficulties producers face because of the global economic meltdown.
On Iraq, where Eni has recently submitted a bid to develop the Nasiriyah oil field, Scaroni said that country has the potential to produce 6 million barrels a day, up from current production of about 2.4 million barrels per day of crude.
"There is not the smallest doubt about the fact there is the potential," he said. "The point is how to develop this potential, and my impression is that the Iraqis are undertaking a very orderly process in order to attract in Iraq the most important national companies."
Scaroni said his company's operations in Iran are proceeding normally despite U.S. efforts to tighten sanctions on that country to pressure it over its nuclear program.
"We are performing two contracts which we were assigned in 2001, much before any sanctions whatsoever," he said. "Since we've been awarded the contract we have to fulfill our obligations and nobody's been asking us not to do it, including the U.S. government."
Copyright 2009 The Associated Press.