Here Comes The Oil Crunch

If we get that v-shaped recovery we’ve heard about, then we could get slammed by a serious oil crunch in just 3 years, says Iain Reid senior oil analyst at Macquarie Bank.

Reid says the financial crisis and the low price of oil in the first half of this year sowed the seeds for the looming crunch. Investment in new production capabilities was slashed as the economy skidded and the price of oil collapsed. Reduced spending on major oil fields is a problem says Reid.

Why can’t oil companies get more oil? He tells Reuters, “If you look around the world it’s either locked up in countries which are difficult to access or it’s locked up in countries where they are tightening access or it’s in these huge mega-structures which are very difficult to develop technically and cost-wise.”

He sees oil supplies peaking in 2014, at 89.1 million barrels per day. By then, unless the recession is still going, oil demand will be outstripping the supply, as seen in the chart from Reid (via Energy Source).

While Reid is very gloomy about the supply and demand picture, he’s not calling for skyrocketing prices. He thinks the price of oil will be $71 in 2010, and just $84 in 2012. Most analysts think it’s closer to $100 by 2012.

Reid says that government policy and new technologies will help stave off price spikes. He also thinks that in the long run, oil demand starts declining, as the supply and demand problems make themselves more apparent.

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