BP's Looney sees case for 'strong' oil prices in coming years

Global oil prices will likely be supported by growing demand, greater OPEC+ discipline, and slowing US output growth in the short and medium term, BP CEO Bernard Looney said Aug. 1.

Despite lingering concerns about the speed of China's economic rebound from COVID-19 and risks to global growth from high interest rates, Looney said he expects to see oil demand growth of more than 2 million b/d this year with well over 1 million b/d of demand growth in 2024.

Looney also noted that US rig counts have fallen from year-ago levels, while OPEC+ appears to be set on supporting oil prices, with unilateral production cuts by Saudi Arabia and Russia.

"I can create a very strong case for oil," Looney told analysts on a quarterly earnings call. "OPEC+ remains exceptionally disciplined if not increasingly disciplined and shows no sign of changing that. You also look at the US where I think the rig count has fallen to the lowest level now since February of last year... so I can create there a situation where you describe the outlook for oil prices to be strong over the coming months and years."

His comments come a day after Goldman Sachs said it continues to forecast that Brent crude futures will rise further to hit $93/b by mid-2024, as supply deficits from record oil demand and Saudi supply cuts are tempered by high OPEC capacity and expected US shale growth.

Brent crude futures were trading at $84.96/b at 1215 GMT Aug. 1, up about $13, or 18%, since the end of June. Analysts at S&P Global Commodity Insights currently forecast Dated Brent to average $83/b in July 2024. Platts, part of S&P Global, assessed Dated Brent at an average of $85.655/b July 31.

Price volatility

Over the coming months, BP also expects to see continued high historical volatility in oil and gas prices, Looney said. He pointed specifically to the potential for European natural gas demand to recover this winter from the 20% hit in the wake of Russia's invasion of Ukraine even though regional gas stocks are currently higher than seasonal norms.

"I think the one thing that you can expect through all of these product streams is probably a lot of volatility, probably more so than we have experienced in history," he said.

Looking ahead, Looney was upbeat that higher expected price volatility for its key energy commodities will lift earnings from its trading divisions.

"I think the one thing that you can say as you look forward in the world... is that the energy transition is complex and therefore complexity will likely lead to volatility. As everybody knows, volatility is constructive for a trading business," he said.

Despite expecting a more supportive oil price environment in the medium term, Loney said BP will continue to plan financially based on much more prudent expectations for price realizations.

"We know that there are numerous uncertainties and we therefore don't plan on that basis and that is why we run the company on the basis of a $40/b oil price, a $3/MMBtu Henry Hub price and we have no intention of moving away from running the company on that basis," he said.