Page last updated at 09:34 GMT, Friday, 8 August 2008 10:34 UK

Oil 'could hit $200 within years'

Petrol pump
Rising oil prices push up the cost of other items such as petrol and plastics

A serious oil supply crisis is looming, which could push prices above $200 a barrel, a think tank has warned.

A "supply crunch" will affect the world market within the next five to 10 years, the Chatham House report said.

While there is plenty of oil in the ground, companies and governments were failing to invest enough to ensure production, it added.

Only a collapse in demand can stave off the looming crisis, report author Professor Paul Stevens said.

"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 in The Coming Oil Supply Crunch.

Lack of funding

Prof Stevens warned that investment in new oil supplies has been inadequate as oil firms prefer to return profits to shareholders rather than reinvest it.

Furthermore, oil producing cartel Opec has failed to meet plans to expand its capacity since 2005.

He also argued that a "resurgence of resource nationalism" means that governments are "starving" their national oil companies of investment by excluding international oil firms from helping to develop capacity.

"While the forecast is controversial and extremely bullish, even allowing for some increase in capacity over the next few years, a supply crunch appears likely around 2013," he added.

"The implication is that it will quickly translate into a price spike although there is a question over how strategic stocks might be used to alleviate this."

Unpopular measures

However, Prof Stevens does conclude that only "extreme policy measures could achieve a speedy response" in boosting supplies and lowering oil prices - a move that is likely to be "politically unpopular".

Other, longer-term moves suggested by the report include offering support to help oil-exporters to manage "resource curse" - where an abundance of natural resources can damage a country's economy - and allowing Opec to join the International Energy Authority's emergency sharing scheme.

The report comes just days after oil prices slipped from peaks near $150 a barrel.


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