Tags: oil | price | rise

Oil Has to Go Up, Eventually

By Julie Crawshaw   |   Monday, 30 Mar 2009 10:47 AM

Oil company spending cuts and falling oil prices have lowered oil production by 8 million barrels a day, setting the stage for a new round of oil price increases when the current recession ends.

The study, performed by Cambridge Energy Research Associates, described the capacity reduction as a “a potentially powerful and long-lasting aftershock" of a price slide that took oil from $147 in 2008 to about $53 a barrel today.

"A price collapse of this magnitude really registers on the Richter scale, and its impact on levels of future investment will be felt for years," CERA chairman Daniel Yergin told The Wall Street Journal.

Prior to the global economic crisis, Yergin’s company foresaw world oil production capacity rising to 109 million barrels a day by 2014 from the current 94.5 million barrels a day.

The group now says 7.6 million barrels a day — or slightly more than half of that increase — is "at risk" due to project deferrals or cancellations.

CERA expects a large number of new projects will be postponed or canceled due to the low oil price.

According to the American Petroleum Institute, a 4.6-million-barrel buildup in U.S. crude stockpiles is pushing prices lower and bearish economic indicators will likely keep prices volatile in the short term, The New York Times reports.

In addition, a potential collapse in the U.S. dollar on the back of trillions in new money printed by the Fed would push prices higher still, as foreign suppliers would demand more depreciating dollars for the same oil.

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Oil company spending cuts and falling oil prices have lowered oil production by 8 million barrels a day, setting the stage for a new round of oil price increases when the current recession ends.The study, performed by Cambridge Energy Research Associates, described the...
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