Mumbai: Reliance Industries Ltd (RIL) chairman Mukesh Ambani said the world should be prepared for “three-digit” crude oil in the “foreseeable future”, in his first public appearance since winning a four-year legal battle with estranged younger brother Anil Ambani.
“By most analyst accounts, crude oil prices will likely be above the $70 (Rs3,157) mark, and in the foreseeable future, in the worst case, we have to be prepared to again see a three-digit oil price,” Ambani said at the Asia Petrochemical Industry Conference 2010 in Mumbai on Friday. Ambani was also critical of government subsidies that create a “future burden”.
Emphasizing that $80-100 was “a norm in this ever-changing global dynamic”, Ambani, Asia’s richest man and the fourth wealthiest in the world, explained there was a need “to reset our thinking” and “find creative responses”, rather than hope oil prices will go back to what they were two decades ago.
Crude oil has been fluctuating in the past couple of years, touching an all-time high of $147 a barrel in July 2008 before plummeting to $30 per barrel levels by December the same year. Oil has pulled back by nearly a 10th since reaching $87.15 a barrel on 3 May, a 19-month high, as the euro weakened against the dollar against the backdrop of the Greece debt crisis.
Bank of America-Merrill Lynch on 11 May repeated its forecast that crude prices will exceed $100 per barrel next year as a result of growing demand in emerging economies while a Goldman Sachs note the same day said it estimated “long-term oil price of $65-90 per barrel from 2013 onwards and $72-96 per barrel from 2011 onwards”.
He avoided mention of the gas dispute with his brother.
Ambani stressed that the era of subsidies was over. “No subsidy creates competitiveness. It is a future burden, it is a burden on the next generation. Cheap feedstock is a thing of the past,” he said.
RIL’s fuel retailing businesses was grounded about two years back after crude oil soared, but it couldn’t raise fuel prices proportionately, as the state oil marketing companies continued selling at prices capped by the government. A government-appointed committee headed by Kirit Parekh in February recommended market-pegged pricing of petrol and diesel.
The loss-making venture was shut in 2008 and has been revived only recently. By end March, it had 650 fuel retail outlets open.
RIL itself has begun reinventing its portfolio and is looking at unconventional ways of extracting oil and gas as it gets harder and costlier to mine these resources. In April, it forged a 40:60 joint venture with Atlas Energy Inc. of the US for its shale sand assets for a total cost of $5.2 billion. RIL will have some $25 billion of excess cash between FY11-14 that it can deploy on acquisitions, according to sector analysts.
Ambani also said consumption-led growth will feed the purchasing power boom in China and India, and this in turn could create huge demand for petrochemical firms—a belief shared by analysts.
RIL’s shares fell 2.64% on Friday to close at Rs1,043.55 apiece, outstripping a 1.57% dip in the bellwether index, the Sensex.
Bloomberg contributed to this story.