Saudi Arabia warned oil prices could spike to beyond the near $150 record high of 2008 within two to three years, as energy leaders on Monday decried a blow to investment in expanding capacity due to the financial crisis.
Energy ministers and officials at the Group of Eight energy summit in Rome are meeting as oil prices hover at a six-month high of over $60 a barrel, but below the $75 a barrel level producers say is needed to spur investment in new production.
Saudi Arabian Oil Minister Ali al-Naimi said the world was heading for a fresh spike after the current phase of faltering demand and lower prices, which reflected the global economic downturn rather than 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, with high development costs and tight credit markets compounding the problem, Naimi said.
GLOBAL OIL AGENCY
Naimi's warning was echoed by others at the energy summit that ends on Monday, with a top IMF official 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 predicts investment in oil and gas exploration and production will fall 21 percent in 2009.
Paolo Scaroni, CEO of Italy's Eni said one solution might be to create a global oil agency representing producers and consumers that would combat price volatility and ensure investments keep flowing into the energy sector.
The G8 energy summit comes ahead of an OPEC meeting on Thursday, when the producer group is expected to keep output levels unchanged as higher oil prices ease concerns about high inventories and a steep fall in demand.
Naimi has previously said he expects OPEC to stay the course when its meet in Vienna, while Algeria has said an output cut is unlikely.
Consumer nations like the United States have urged OPEC to keep its focus on price stability to prevent an oil spike that could derail hopes of an economic recovery.
(Additional reporting by Silvia Aloisi; writing by Deepa Babington; editing by James Jukwey)