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Oil prices to stay above $100 per barrel, says IEA

Martyn Wingrove, Stavanger - Wednesday 27 August 2008

THE price of oil is set to remain over $100 per barrel for the next five years, according to the head of the International Energy Agency. 

Addressing energy executives at the Offshore Northern Seas conference in Norway today IEA executive director Nobuo Tanaka insisted that the oil market has changed, possibly for ever. 

Ship bunker prices are likely to also be high right through to 2013, he said, leaving vessel owners with the challenge of keeping operation costs down. For offshore vessels and tankers, however the bonus of strong demand should be sustained. 

Citing declining production in mature areas like the North Sea and delays to the start up of key projects, such as Kashagan in the Caspian Sea, Mr Tanaka said world output has not increased as much as expected and resources are falling. 

“The oil market has changed. We expect the spare capacity cushion to remain worryingly low towards 2013. This would suggest that prices are unlikely to return to the levels of a few years ago,” he explained. 

“High oil prices have forced us to revise down our 2008 demand numbers and the ongoing issues of field decline, project delays and geopolitics have lowered our expectations on the supply side.” 

Mr Tanaka has urged consuming nations to reduce fuel subsidies and exporters to increase investment levels to bring on stream new fields and facilities to prevent a shortage in supplies in the next five years. 

With output falling in nations such as Norway, Mexico and the UK, more of the oil cargoes will be coming from countries of the Organisation of Petroleum Exporting Countries, which affects oil and tanker markets. 

“Production will be increasingly dominated by a small number of major producers, where oil resources are concentrated. Opec’s share is expected to grow significantly, from 42% now to 52% by 2030. In contrast non-Opec output is expected to peak in the middle of the next decade,” Mr Tanaka told executives. 

“This growing mismatch between the locations of demand and supply will see many countries become increasingly dependent on imports. This could accentuate their vulnerability to supply disruptions and resulting price shocks.”