Signs of oil price recovery emerging: Shell

Ben Van Beurden, CEO of Royal Dutch Shell, was cited by multiple news agencies as saying during a conference in London on Tuesday: “In May and June we saw the first signs of reduced production”.

OPEC has kept output high to hold prices down as it competes with US shale producers like EOG Resources (NYSE:EOG) and Continental Resources (NYSE:CLR) for market share, hoping that lower oil prices would push out fracking, a more expensive method of drilling. Yet with capital costs coming down, it’s likely that margins will improve and that the industry will “reset itself”, he said.

While the comments were mildly encouraging, the timeframe for such a rebalance remains unclear.: “It will take a few more time to rebalance demand and supply”, agencies cited Van Beurden as saying.

“After this happens, Saudi Arabia?s strategy and cohesion within OPEC will remain key uncertainties”.

If they get it right and find a new balance, prices will recover. The average 1-year price objective among brokerages that have covered the stock in the past year is GBX 2,125.91 ($32.29).

“Iran is an interesting country for its geology, but we have to see how the market’s terms and conditions will develop and how our appetite to invest will develop – at this point in time, it is premature [to discuss]”, van Beurden said.

Crude oil prices have more than halved over the past year, with worldwide benchmark Brent crude falling from over $100 a barrel in the summer of 2014 to trade at $49.32 today. “Less supply means high prices”, he said.

“This could cause prices to spike upwards, starting a new cycle of strong production growth in USA shale oil and subsequent volatility”, he told the oil and money conference in London on Tuesday.

Van Beurden reiterated Shell’s support for a viable carbon pricing system.

A top OPEC official expects global oil investments to fall by $130 billion this year amid continued low oil prices and efforts by oil majors like Royal Dutch Shell (NYSE:RDSA) to maintain their dividends.

Speaking ahead of a crucial United Nations climate change conference in Paris in December, Van Beurden urged governments to take steps to encourage investment in technology to produce renewable energy, and move towards cleaner natural gas.