SINGAPORE�Oil prices are likely to remain volatile and their recent record levels have hurt refiners by constraining margins and demand, according to Caltex Corp. Chairman and Chief Executive Jock McKenzie. He was delivering the Singapore Oil Lecture 2000 at the 16th Asia-Pacific Petroleum Conference held in Singapore last week.
McKenzie said that high crude oil prices have led Caltex to cut its forecast for demand growth in the Asia-Pacific and African regions to just 2.7% this year from earlier estimates of 3.5-4%. Demand has actually fallen in the Philippines and South Africa. These emerging statistics, he said, were disturbing signals that continuing high crude prices are undermining the region's economic recovery.
Although the controversial recent decision to release US strategic oil reserves has pulled oil prices back from their recent highs, he said, prices were likely to continue to be volatile. In the longer term, prices must return to economically sustainable levels.
The consensus amongst industry analysts, he said, was that this would be achievable at $22-$26/bbl. This is a range that would encourage exploration and production while preserving sustainable economic growth in Asia, McKenzie said.
Current projections are for Asian oil consumption to rise to around 29 million b/d by 2010 from the current 20.5 million b/d, accounting for half of the projected global increase from 77 million bbl to 95 million.
In terms of margins for Asian refiners, McKenzie said that although there was a perception that high oil prices have meant "super" profits, margins which had been at historical lows had to rise so as to fund investments to meet demand for diesel and middle distillates.
With Asia still a region of abundant growth opportunities, he said that the challenge for Caltex and the oil industry was to embrace the new economy of talent and technology. Technological advances mean new and more efficient ways to service customers and carry out activities like procurement, and this requires talented people.
But unlike refineries, terminals, depots, and service stations, talented people can, and do, literally decamp overnight to better opportunities, McKenzie added. With the challenges of high oil prices, safety, and the environment, he said that this emphasized that the industry's successes would be directly linked to the people who have the talent and entrepreneurial spirit to keep the industry on the cutting edge of change.