Saturday 20 December 2008

Oil at $40 a barrel will cause 'price explosion' in future

Oil at $40 a barrel will cause 'price explosion' in future
The oil cartel OPEC is right to warn that sharply falling oil prices will create a "price time-bomb for the future", experts have warned.

By Rowena MasonLast Updated: 7:16PM GMT 19 Dec 2008

The site of Saudi Aramco's (the national oil company) Al-Khurais central oil processing facility under construction in the Saudi Arabian desert. Photo: AFP
Saudi Arabia's oil minister Ali al-Naimi and Abdalla El-Badri, secretary-general of OPEC, said low demand was "wreaking havoc" by halting investment in the sector.
Oil prices in London fell near to $40 per barrel this week – down from a spike of $147 in July– prompting OPEC to cut supply by 2.2m barrels a day. Prices were closer to $35 in New York
If the low prices stop investment in exploration and production, there will be a shortage of oil in years to come, the producers said at a global summit in London.
Prime Minister Gordon Brown called for an end to oil trading volatility, acknowledging prices could jump sharply if investment faltered. However, energy minister Ed Miliband insisted that low oil prices were good for consumers and the world economy.
OPEC called on Western governments to cut fuel tax to help push prices back up to the "fair and reasonable" sum of $70 per barrel.
Inenco, the UK's largest energy analyst, agreed that slumping demand would ultimately cause prices to rocket.
Oil exploration and production projects in the Canada, USA, Mexico, Damman have recently been shelved because they have become uneconomical.
"The oil price would need to be in the range of $70-$80 a barrel to make these projects economically viable," said Inenco consultant Ian Parrett.
Sources close to BP said the oil company feared current lack of investment would create an undersupply in three to five years' time.
Barclays Capital said global spending on production will shrink 12pc to $400bn in 2009. .

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/3852773/Oil-at-40-a-barrel-will-cause-price-explosion-in-future.html

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