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Written by Olivier Ludwig  |

September 06, 2011

Weeden’s Maxwell: Oil On Course To Hit $180

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Senior energy analyst for Weeden & Co. says oil prices will continue to rise as world nears full production capacity.

[This article first appeared on IndexUniverse.com and is republished here with permission.]

The apparent end of Moammar Gadhafi’s more-than-40-year reign in Libya seemed like a propitious time for IndexUniverse.com Managing Editor Olivier Ludwig to check in with Charles Maxwell, Weeden & Co.’s senior energy analyst.

While it’s tempting to embrace clean story lines, the outlook for crude production in Libya and unstable countries like it is anything but clear. The only sure thing, to hear Maxwell describe it, is that oil prices will continue to ratchet higher as the world nears its full production capacity. The only question is how quickly we’ll all be able to adjust to this new reality through the use of alternatives such as natural gas and through energy conservation.

Ludwig: I’m interested in hearing your thoughts about the oil market, particularly as it relates to the Arab Spring.

Maxwell: At the moment, you could argue that there are some near-term factors that could bring prices down a bit.

Ludwig: Are you thinking about the toppling of Gadhafi, for example?

Maxwell: Yes. The first would be the toppling of the Gadhafi regime, the recognition that, though it may take some time, Libya is likely to come back on-stream and be a full-fledged producer again. I think it will take about two years to bring everything back on-stream. But I think that the best part of it will be back on-stream in, say, nine months.

Ludwig: Refresh me on the barrels-per-day production, because a lot of different numbers are floating around.

Maxwell: There are different numbers floating around. They had been producing anything between 1.3 million and 1.6 million in the months prior. I would use something like 1.5 million. They should be able to get back to 1.5 million in about two years, and 90 percent of that should be in the first year. And then they would go through some expansion. And, without Gadhafi, the expansion could be a little greater.

Ludwig: So what’s the pie-in-the-sky number for Libya if things go exceedingly well, in terms of future discoveries and extraction?

Maxwell: I think they can get up to 2.5 million barrels a day in another four or five years. But I think that would be their peak. Then they would go flat for a while, and then they would begin to go down.

Ludwig: You alluded to other factors, apart from Libya, in the nearer term, that could affect oil prices.

Maxwell: Yes. Syria and Egypt are the next big problems; Egypt because we’re coming up to an election in September, and the Muslim Brotherhood may win. Now, the Muslim Brotherhood may turn out to be very reasonable, because they want the money, or very unreasonable, because they want to impose their vision of the world on the Egyptian people, and they don’t give a damn about the money. It’s hard to know.

Ludwig: And Syria? Neither of these countries are big oil producers. You're just talking about the general geopolitical stability?

Maxwell: Yes. But Egypt actually produces 700,000 bpd and Syria about 400,000. So together, a little over 1 million barrels a day. It’s not immaterial.

But yes, it’s more the fact that Syria is the key to peace in the Middle East for Israel. And Egypt, I think, is the key to a lot of social changes in Africa, North Africa and the Middle East because of their large population and their strong intellectual capabilities from universities and so on. So yes, they're both very important to us.