Energy ministers and officials at the Group of Eight energy summit met in Rome as oil prices hovered at a six-month high of $ 60 a barrel, but below the $ 75 a barrel level producers say is needed to spur investment in new production.
Petroleum and Mineral Resources Minister Ali Al-Naimi said the world was heading for a fresh spike after the current phase of faltering demand and lower prices, which he said reflected the economic downturn rather than being an indicator of things to come.
“We are maintaining our long-term focus rather than being swayed by the volatility of short-term conditions,” he said in prepared remarks at the summit. “However, if others do not begin to invest similarly in new capacity expansion projects, we could see within two-to-three years another price spike similar to or worse than what we witnessed in 2008.”
Low prices and weak demand had discouraged investment in energy projects, while high development costs, tight credit markets and energy policies focused on alternative fuel sources were compounding the problem, Al-Naimi added.
The Saudi warning was echoed by others at the energy summit that ended yesterday, with a top official of the International Monetary Fund (IMF) also forecasting price spikes over the medium-term following relatively stable markets in the short-term.
“With long time-to-build lags, significant setbacks to oil investment today could set the stage for future sharp price increases,” IMF First Deputy Managing Director John Lipsky said.
He said energy investments were likely to remain subdued in 2010, after an expected decline in 2009. The International Energy Agency (IEA) predicts investment in oil and gas exploration and production will fall 21 percent in 2009.
The IEA said in comments published yesterday that oil producers have canceled or delayed $ 170 billion worth of investment in recent months. Falling oil prices, tight credit markets and slumping demand have stunted investment, IEA’s chief economist Fatih Birol was quoted as saying by France’s Petrol Industry Bulletin.
Birol said oil investment was hit the hardest in North America and the North Sea, while the Middle East was relatively spared since production costs are lower there.
Oil prices fell toward $ 61 a barrel yesterday ahead of a meeting of the Organization of Petroleum Exporting Countries in Vienna, where the group was widely expected to agree not to cut oil output further. US crude futures for July delivery fell 39 cents to $ 61.27 a barrel by 1712 GMT. London Brent crude shed 56 cents to $ 60.22.
