saudis warn of huge price rise

The Guardian | Minister says crude could be back at record highs within two years

Saudi Arabia warned today that the world could be facing another oil shock, with prices back above the record highs of almost $150 a barrel within two to three years.

The comments from the Saudi oil minister at an energy summit in Rome were echoed by the IMF, both blaming lower prices and the global recession for hampering investment in new capacity.

Prices have fallen back from the peak they reached last year, largely because of the fall in demand in the downturn, and are hovering at about $60 a barrel.

"We are maintaining our long-term focus rather than being swayed by the volatility of short-term conditions," said the Saudi oil minister, Ali al-Naimi, ahead of an Opec meeting in Vienna on Thursday. "However, if others do not begin to invest similarly in new capacity expansion projects, we could see within two to three years another price spike similar to or worse than what we witnessed in 2008."

He said low prices and weak demand had discouraged investment in energy projects. Those problems had been compounded by high development costs, tight credit markets and energy policies that are focused on alternative fuel sources.

IMF first deputy managing director John Lipsky said: "With long time-to-build lags, significant setbacks to oil investment today could set the stage for future sharp price increases."

Oil prices reached $147 a barrel in July 2008, worsening the global downturn, before falling sharply to $32 as the recession took hold.