Oil prices are rising, but it's still no time for the industry to celebrate

Brent crude oil prices rose above $51 a barrel on Friday

(Getty Images)

A rally that has driven the international crude oil price above $50 a barrel is a welcome sign for oil companies that have tightened their belts in order to weather the collapse in crude prices but it might still be too early for the industry to start celebrating, experts warned.

Brent crude, the international benchmark for oil, rose to $51 a barrel for the first time in six weeks on Friday morning on hopes that the world’s largest suppliers prepared to discuss a possible freeze production levels.

Oil prices have risen more than 20 per cent in August on news that the Organization of the Petroleum Exporting Countries (OPEC) and other major producers like Russia are scheduled to meet in Algeria next month to agree on measures to support crude buoyed sentiment.

But the rebound might not still solve the problems of the oil industry in the midst of a two-year slump.

In a recent interview with the Wall Street Journal, Dave Hager, chief executive of Devon Energy said that many US producers need oil to hit $60 a barrel to recover.

“I don’t think you can generalize and say that $50 oil would signal a strong recovery. There are many areas that are not as strong in economics,” he said.

(Bloomberg (Bloomberg)

Tony Durrant, chief executive of Premier Oil, said that despite the “upswing moment” his partners around the world were still cancelling projects every week.

Analysts also remain sceptical about the September meeting between OPEC and oil suppliers producing any form of production freeze.

“OPEC cooperation hopes should be treated with caution, as this is shaky ground to base a bull rally on,” Citibank analysts said.

"We remain sceptical that renewed talks of a production freeze by OPEC and other large producers will lead to a deal. Prices are only marginally above where they were when the group met in Doha in April and couldn’t agree to a deal," Australian bank ANZ said.

Tensions between Saudi Arabia and Iran were already blamed for the failure to reach a deal in April, damaging the credibility of the OPEC and raising fears that governments could start raising production instead, forcing the oil price to new lows.

In May, when oil prices were below $50 a barrel, Shell unveiled plans to cut 2,200 more jobs taking the total tally of losses to 12,500 from 2015 to 2016 as the world’s second-biggest oil company continued to adjust to the slump in prices.

This year, 330,000 jobs will be supported by oil and gas production, down from a peak of 450,000 in 2014, according to a report from Oil & Gas UK.

This means the UK oil and gas industry will axe 120,000 jobs by the end of the year following the collapse in oil prices,

“The industry has been spending more than it is earning since the oil-price slump towards the end of 2014,” Deirdre Michie, chief executive officer of Oil & Gas UK, said.

“To survive, the industry has had no choice but to improve its performance,” she added.

Oil prices have hit a 12-year low in January before rallying 90 per cent to a year high in June.