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Lack of investment heightens danger of an oil price shock: Crescent Petroleum CEO

Lack of investment in the oil industry has significantly heightened the risk of an oil price shock in the coming years, according to Crescent Petroleum's chief executive.

Majid Jafar, CEO of the United Arab Emirates–based oil and natural gas producer, highlighted the perceived absence of investment in oil markets and predicted a volatile future for the commodity if this trend continues.

"The problem over the last year is no one has been investing enough in the upstream. ... [It has been this way] for three years in [a] row, which is unprecedented, and so there is a real risk a few years down the line of an oil price shock," he told CNBC on Tuesday in Davos, Switzerland.

Oil production cuts may usher in a new dawn for prices in 2017.
Mohd Jailanee Othman | EyeEm | Getty Images
Oil production cuts may usher in a new dawn for prices in 2017.

"I think the new U.S. administration is going to see energy diplomacy as part of the spectrum of international relations. Much more so with the secretary of state likely coming from the industry, I think it is going to be an interesting part of the discussion with Russia and the Middle East," he added.

President-elect Donald Trump's nominee for secretary of state, former ExxonMobil CEO Rex Tillerson, appeared before the Senate Foreign Relations Committee last week to testify. Tillerson still requires congressional approval to be appointed.

Landmark deal

Under an accord reached in late 2016, OPEC and non-OPEC oil-producing nations such as Russia agreed to reduce global oversupply and cut oil production by 1.8 million barrels per day (b/d), initially for six months.

Investors have remained skeptical since the deal was struck that oil producers would be able to adhere to their respective commitments in an effort to balance the markets.

Jafar argued increased production in shale oil — even when prices are hovering around $55 a barrel — has supported his belief that prices would stay in the range of $45-60 a barrel for "some time to come."

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