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Oil could reach Dlrs 200 due to supply gap, UK report warns

London, Aug 8, IRNA - Only a collapse in the global demand for oil can save economies from a supply crisis and crude prices reaching more than Dlrs 200 a barrel (dpb), a new report published by Chatham House think-tank warned Friday.

The report, authored by Professor Paul Stevens, blamed governments and companies for investing too little to meet future energy needs and said a "supply crunch" will hit within "five to 10 years." An oil supply crunch is where excess crude producing capacity falls to low levels and is followed by a crude 'outage' leading to a price spike, Stevens said.

"If this happens then the resulting price spike will carry serious policy implications with long-lasting effects on the global energy picture," he warned.

The professor of petroleum policy and economics from Dundee University in Scotland argued that not enough money and expertise were invested in the 1990s to maintain the capacity needed to satisfy present trends in oil consumption.

Apart from blaming oil companies for spending too much on dividends to shareholders rather than re-investing, he said that OPEC members had also failed to meet plans for capacity expansion since 2005.

His belief was that while there is plenty of oil in the ground, not enough was going on above ground to convert these resources into "producing capacity." One of the factors was that some governments are "starving" their national oil companies of investment funds.

"A spike of over Dlrs 200 is possible," Stevens warned.

"In reality, the only possibility of avoiding such a crunch appears to be if a major recession reduces demand - and even then such an outcome may only postpone the problem," he said.

His report, coming at a time when some reports suggest global oil production has reached its peak, was seen dispelling hopes that the recent 20 per cent fall in the oil price from nearly 150 dpb might herald a return to more manageable levels.

... Payvand News - 08/08/08 ... --

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