When the economy 'recovers', oil supply won't

SHOOT: Which means the concept of 'recovery' is mystical. Why? Because economies need energy to function. Jeopardise energy and you jeapordise economics.

clipped from www.independent.co.uk One fundamental problem is that although the economy may be about to rebound, the oil supply probably will not. The precipitous collapse from $147 per barrel has caused upstream investment to slump by $100bn, or 21 per cent. Developing a new field usually takes around six years, so if nervous companies continue to delay investment decisions as the recovery gathers strength, when Opec's current spare capacity is exhausted demand will again outstrip supply and produce another damaging price spike. Shell's chief executive, Jeroen van der Veer, recently warned that this "may already be in the making". Opec has failed to materially increase its capacity in the past few years, despite an unprecedented seven years of rising oil prices. The resulting spike and collapse were entirely predictable, and inimical to Opec's interests. If its members could have raised output to prevent this outcome they would have.