Why low oil prices now may mean higher oil prices later

WASHINGTON, D.C.: What until recently was a steep drop in global crude oil prices has sparked delays and cancellations of major energy projects across the globe. Experts fear that this pullback could provoke costly supply shortages just over the horizon.

“Energy investment worldwide is plunging in the face of a tougher financing environment, weakening final demand for energy and falling cash flows,” the Paris-based International Energy Agency warned in a report late last month.

The IEA also warned that investment is being curtailed both on the supply side and the demand side, meaning that spending is falling on both drilling of oil and gas wells and on expansion of refineries, pipelines and power stations.

In the short term, falling prices are a boon to consumers. Experts, however, warn of problems if the U.S. economy _ the world’s largest oil consumer _ returns to normalcy and the global economy resumes its torrid pace of growth.

If the ability to find and produce more oil is put on hold and the global economy roars back to life, last year’s record oil prices could seem tame. Today’s pullback in prices may be setting the stage for tomorrow’s shortages.

Energy Current