BP chief predicts oil could fall to US$25

Lord Browne, the chief executive of energy giant BP, has predicted that the price of oil could drop as low as US$25 a barrel, in direct contrast to a market that sees prices remaining sky-high.

The long-standing leader of BP, the world's second largest oil company, said that while prices will not moderate in the near term, within five years, Lord Browne of Madingley saw oil coming down to US$40.

In about a decade, he predicted the price could be as low as US$25.

The price of oil has climbed to over US$75, hit in April this year, amid tight supply and robust demand, heightened by political tension.

Paul Horsnell, the head of energy research at Barclays Capital, said that trading on the futures markets did not agree with Lord Browne's view.

"The market is not projecting anything below US$60 right through the curve. At this moment, it is impossible to buy oil for less than US$66," he said.

Mr Horsnell said that futures markets traded out to 2012.

But even beyond that, banks like Barclays Capital traded as far ahead as 15 years and even those deals did not see oil coming below US$60.

"The market is not certain about the supply side. We believe it is non-Opec production that has failed to perform," Mr Horsnell said.

However, Lord Browne, speaking in an interview with the German magazine Der Spiegel, pointed to large reserves that are still undiscoveredor untapped and new technology that would bring down extraction costs.

"We cannot really count on oil prices easing very much in the near future," Lord Browne said.

"But is very likely that oil prices will range in the medium term around an average of US$40.

In the long run it could even be US$25 to US$30."In the interview, he appeared to define medium term as five years and the long term as around a decade.

Lord Browne, one of the most respected figures in the industry, said that companies were finding large oil deposits in the Caspian Sea, while there was good production potential in countries such as Russia and regions including Western Africa.

He also said that improved efficiency would help boost crude extraction.

Lord Browne said: "In the past we managed to get out 20 per cent to 30 per cent. At the moment it's maybe 40 per cent to 45 per cent. I can see no reason why we could not reach 50 per cent or 60 per cent."

Jeffrey Currie, of Goldman Sachs, said he believed that oil would still be as much as US$60 in five years' time, kept high by soaring costs.

He said that the industry had suddenly decided to invest, in order to raise production, but output would struggle to respond - as a result of obstacles such as a shortage of skilled labour.

"The industry is spending for the first time in 30 years. The cost structure has been pushed up tremendously. They have to de-bottleneck the entire system," Mr Currie said.

Craig Pennington, the head energy analyst at Schroders, agreed that costs was the issue that would keep prices well above the level anticipated by Lord Browne.

He did not see oil falling below US$40 - and that only after spare production capacity was built up and the current geopolitical premium goes.

"It is difficult to see US$25 or US$30. The costs have just moved to a higher level," Mr Pennington said.

In the late 1990s, oil fell close to US$10.

It took off again after the 9/11 terrorist attacks in the US.

In trading yesterday, the price eased, with some traders citing Lord Browne's comments as a factor.

Oil remained above US$70 though, as political tension over the Middle East continued to underpin the market.

- INDEPENDENT