Crude oil prices can reach $200 per barrel if worldwide oil production falls dramatically and if low investment curtails global oil output in the next decade, say experts.
"Cutting worldwide oil production by four to five million barrels per day could get us close to $200," Ed Hirs, an energy economist at the University of Houston in the U.S, told The Anadolu Agency.
OPEC's Secretary-General Abdallah Salem el-Badri said Monday oil prices could reach $200 per barrel if levels of production and new investments decrease in the industry amid low oil prices and lower oil supply in the market.
"There are conditions under which the price of oil could reach $200 per barrel," said Hirs, emphasizing an article he co-authored.
"A supply cut of 10 million barrels of oil per day in the world market would lead to a spike price estimated to be in excess of $400 per barrel for the domestic market," says the article named 'Crude Oil Imports and National Security,' published on Feb. 2010 on the Social Science Research Network.
Hirs said their analysis show that a one percent supply could lead to a 25 percent decrease in oil prices.
"The OPEC data indicates that the market has about two million barrels per day more supply this year - a greater growth in supply than in demand," he said.
Glut of supply and low global demand for oil are the main reasons behind the falling oil prices since last June, which dipped to their lowest point since March 2009, and have seen their fastest fall since 2008.
"So, for a two percent increase in supply while demand is relatively static, the price will fall by 50 percent just as it has done," Hirs added.
While the price of global benchmark Brent crude oil price was $115 per barrel in June, it fell around 60 percent, and dipped below the $46 per barrel mark on Jan. 13.
- Nexus of price fall and low investment
"Current low prices are hampering investment," said Willem Auping, a strategic analyst at The Hague Centre for Strategic Studies.
Meanwhile, the reverse situation is also possible, as Auping stated that underinvestment will ultimately contribute to a rising oil price in the future.
"It would take some time for the price of oil to reach $200, perhaps even up to 10 years," he added.
Dr. Florence Eid-Oakden, a chief economist of Arabia Monitor, an economic research and strategy institution in London also drew attention to low level of investment and its effects on oil prices.
"Without enough investment in new fields, the existing supply of oil will shrink as time goes on, putting upward pressure on prices," she said.
While the world may wait a decade for oil prices to reach $200 per barrel, the amount of time to develop new projects and harvest production must also be taken into consideration.
"It will take a long time to start up new projects if and when a supply crunch comes," said Dr. Eid-Oakden, emphasizing that many new oil projects take five or six years to start producing, adding "catching up when demand rises could be difficult."
She warned that at $200 per barrel, oil importers would start cutting back, and would accelerate efforts to switch to alternative energy sources.
"At those prices, alternative energies could take the market share away from oil permanently," she added.
By Ovunc Kutlu
Anadolu Agency
ovunc.kutlu@aa.com.tr
