World likely to face severe oil crunch by 2015



ABU DHABI - There could be a severe global oil crunch by 2015 due to drastic changes in the oil market fundamentals, a World Bank consultant told the 17th Annual Energy Conference of the Emirates Centre for Strategic Studies and Research (ECSSR).

Addressing the ECSSR conference in the UAE capital, Dr Mamdouh Salameh, Consultant on Oil and Energy Affairs for the World Bank, said: “Unfortunately, the current alignment of these fundamentals can only lead to a severe tightening of the oil market. Other major factors impacting on the global oil market are China and the declining influence of OPEC. An analysis of these fundamentals indicates that a severe oil crunch could be in the offing, probably by 2015 or thereabouts, with oil prices projected to exceed the level reached in July 2008.”

He further added in the face of a looming oil crisis, OPEC will soon reach a crossroads. “It must ramp up supplies very significantly to stem the projected steep rise in the oil price or risk becoming irrelevant,” he warned.

However, he said, OPEC’s previous encounter with high prices in 2008 did not inspire confidence because the organization was then unable to halt the oil price onslaught due to its members hardly had any spare production capacity. “Today, OPEC still has little spare capacity and therefore can no longer influence the global oil market and the oil price.”

Dr Salameh further explained: “In theory, one would assume that OPEC works more effectively when the oil price slides down because it is within their power to cut production to shore up prices.

“But since the OPEC members have a history of not adhering to their reduced quotas, even this policy will eventually fail. Moreover, since oil prices are projected to remain high well into the future, OPEC could become irrelevant and its production quota system redundant along with OPEC itself.”

The pressure on the oil price, he added, will, therefore, continue unabated in coming years, and how far up prices will go is anybody’s guess.

But a projected price ranging from $150–$170 per barrel by 2015 may not be out of place. When the oil price hit $147 per barrel in July 2008, it precipitated the biggest economic crisis the world has ever witnessed since the 1930s. One can only imagine what damage to the global economy a price level of $150—$170 per barrel could cause,” Dr Salameh concluded.

 

Nissar Hoath



3 November 2011