IEA warns that investment cutbacks could lead to oil price spikes

Oil prices may return to “significantly higher” levels because companies have cut investment in the new production needed to match demand from fast-growing China and India, the International Energy Agency’s chief economist said Friday.

IEA chief economist Fatih Birol told The Associated Press that oil companies have canceled at least $170 billion of planned investments — including $100 billion this year — as they seek to save money amid the financial and economic crisis.
That’s equivalent to 2 million barrels of oil per day, and a further 4.2 million barrels per day of future oil-supply has been delayed by at least 18 months, he said.

Oil companies are likely to announce even more cutbacks in oil and gas production investments in coming months, he said.

“If there is a rebound in demand with a reduction of investments on the supply side, we may have difficulties” with oil prices “significantly higher than today” in coming years, he said.

“It’s bad news for the economy which is still very, very fragile.”

Los Angeles Times