Alex Lawler

Friday, March 06, 2009

LONDON — Low oil prices could provide economic stimulus in the short term, but at the cost of a supply shortfall in future due to low investment, OPEC's secretary general said on Friday.

The Organization of the Petroleum Exporting Countries meets on March 15 to review supply policy and some members of the group have raised the possibility it may cut oil output further to boost oil prices.

“If the current low price environment persists, this short-term relief may not translate into long-term gain,” OPEC's Abdullah al-Badri said in a statement.

“Oil prices need to be at levels to help sustain economic growth, by supporting longer-term energy industry investments across the board.”

The comments follow statements from the International Energy Agency, which advises industrialized countries, that the world would get a $1-trillion (U.S.) economic stimulus if oil prices stayed at around $40 a barrel through 2009.

The calculation is based on oil being $60 a barrel below its $100 average in 2008, when prices hit a record high. The $1 trillion figure is conservative.

Assuming world oil demand of around 85 million barrels per day, the $60 price difference would mean an annual saving of around $1.9 trillion for consuming countries.

Speaking to Reuters on Thursday, IEA executive director Nobuo Tanaka warned of a possible repeat of last year's record high oil prices by 2013 if producers did not invest in new supplies.

OPEC members, who hold more than three quarters of the world's proven oil reserves, have cancelled some projects to expand supplies due to low prices and falling demand.

Mr. Badri, while agreeing with the statement that a failure by the industry to invest will result in a supply crunch by 2013 and beyond, called the IEA's comments “confusing and misleading.”

“Whilst asking for prices to remain at $40, it also wants investments to be made that are not economically viable at these prices,” he said.

Mr. Badri's statement contained no hints of what the group would do when it meets in Vienna later this month, although it noted the IEA had this year been lowering its oil demand forecasts.

The IEA's chief economist, Fatih Birol, told Reuters on Thursday that higher prices would slow the global economic recovery and OPEC should consider that impact before it decides whether to deepen supply cuts.

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