Oil 'could hit $200 within years'

A serious oil supply crisis is looming, which could push prices above $200 a barrel, a think tank has warned. A "supply crunch" will affect the world market within the next five to 10 years, the Chatham House report said. While there is plenty of oil in the ground, companies and governments were failing to invest enough to ensure production, it added. Only a collapse in demand can stave off the looming crisis, report author Professor Paul Stevens said. "In reality, the only possibility of avoiding such a crunch appears to be if a major recession reduces demand - and even then such an outcome may only postpone the problem," he said in The Coming Oil Supply Crunch. Lack of funding Prof Stevens warned that investment in new oil supplies has been inadequate as oil firms prefer to return profits to shareholders rather than reinvest it. Furthermore, oil producing cartel Opec has failed to meet plans to expand its capacity since 2005. He also argued that a "resurgence of resource nationalism" means that governments are "starving" their national oil companies of investment by excluding international oil firms from helping to develop capacity. "While the forecast is controversial and extremely bullish, even allowing for some increase in capacity over the next few years, a supply crunch appears likely around 2013," he added. "The implication is that it will quickly translate into a price spike although there is a question over how strategic stocks might be used to alleviate this." Unpopular measures However, Prof Stevens does conclude that only "extreme policy measures could achieve a speedy response" in boosting supplies and lowering oil prices - a move that is likely to be "politically unpopular". Other, longer-term moves suggested by the report include offering support to help oil-exporters to manage "resource curse" - where an abundance of natural resources can damage a country's economy - and allowing Opec to join the International Energy Authority's emergency sharing scheme. The report comes just days after oil prices slipped from peaks near $150 a barrel.

Oil hangs around $120 after pipeline shutdown SINGAPORE (AFP) - Oil prices held around 120 dollars a barrel in Asian trade Friday on jitters sparked by the disruption of a pipeline carrying crude from Central Asia to the West. In afternoon trade, New York's main contract, light sweet crude for September delivery was down 23 cents at 119.79 dollars a barrel after rebounding 1.44 dollars to close at 120.02 dollars a barrel in closing US trade Thursday. Brent North Sea crude for September was down 26 cents to 117.60 dollars per barrel. "It's still hanging around the 120-dollar level. It has edged down a bit but that's just part of the volatility of the market," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore. "Supply side issues will continue to oppose the price slide while the concerns over slackening US demand will weigh down on prices." Sucden analyst Andrey Kryuchenkov said: "Overall, the market remains at a crossroad. Market participants are torn between persistent fears over slowing energy demand and potentials for further supply disruptions." One supply side risk comes from the shutdown of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline due to a blast at a pump in eastern Turkey, Shum said. The pipeline will remain shut for about 15 days, an official from Turkey's state-run oil and gas company BOTAS told Anatolia news agency Thursday, but analysts said it could be longer. "The BTC pipeline outage could last up to five weeks. That represents a significant disruption to non-OPEC supply," Shum said, referring to the Organisation of Petroleum Exporting Countries. Inaugurated in 2006, the pipeline carries oil from the Caspian Sea fields to Turkey's Mediterranean port of Ceyhan, where tankers transport the crude to Western markets. British energy giant BP said it was looking at three alternative means of delivering supplies to Western clients, and a BP spokesman told AFP that the company had begun to limit its output. "We have ramped down production," the spokesman said. BP was looking into transporting the oil out of Azerbaijan either by rail, a Russian pipeline as far as the Black Sea, or via a pipeline that ends in Georgia, he said. News of the disruption sent oil prices boiling. Prices had been easing due to concerns that slower economic growth in the United States, the world's biggest energy guzzler, would translate into a decline in global energy demand. Crude futures also lost ground after a surprise jump in US oil reserves, traders said. Oil futures have shed about 20 percent in value since hitting record highs above 147 dollars per barrel on July 11.