Need for New Investments in Oil Sector

A decade ago, oil companies cut investments after crude fell as low as $10.72 a barrel. That led to restrained supply capacity, which boosted prices to a record $147.27 on July 11 last year.

Eight months later, the situation is totally different. The severe economic crisis flattered demand for oil and sank crude prices to levels under $50 per barrel. Now the ghost of oil underproduction in the coming years has returned. This fear is one of the most sound OPEC’s arguments when it is discussing about its future production policy. According to OPEC’s leadership “prices below $50 a barrel are “too low” because they don’t allow producers to invest in expanding capacity”. This is true, and is not just a speculative response to the falling prices. Except oil major production nations, major oil companies are cutting their investments on new fuels or to increase their production in future. The combination of low prices and financial crisis do not allow huge spendings in new investments. But this creates a very dangerous scenario. When the world economy recovers, the production maybe will not be able to satisfy demand. And this could send the fragile economy back in to a new recession, an energy crisis this time. If this scenario becomes a reality, both economy and the shipping market, not only the tanker sector that is directly connected with oil demand, will suffer again.

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