Exxon Says Soaring Demand is Main Reason for Rebound in Oil Prices

Soaring demand is the main reason for the rebound in oil prices — but if the economy falters, crude could tumble back to $40 a barrel, according to Exxon Mobil Corp.

Cuts by OPEC countries have helped, but economic expansion is what’s “really driving demand at levels much higher than recent history,” Chief Executive Officer Darren Woods said Wednesday in a presentation to analysts in New York.

Surging production from U.S. shale, particularly the Permian Basin in Texas, is swallowing up most demand growth and will do so to 2020, the International Energy Agency said this week. That leaves OPEC with a tough choice: either maintain cuts and risk losing market share, or end them and see the price of crude plunge.

“When that demand starts to tail off, if Permian production continues to rise, I think that you’re going to see a different rebalancing of the market and OPEC will have to make some calls around how they want to manage that,” Woods said.

West Texas Intermediate crude dropped 2.6 percent to $60.99 a barrel at 1:21 p.m. in New York.

Exxon can’t rely on short-term market swings to make long-term investment plans, so the company tests its decisions with oil at $40 a barrel, Woods said. “You could find yourself back in there, depending on how this all plays out.”