In spite of recent decreases in its price, oil is likely to hit the $200 (Rs8,440) per barrel within five to 10 years, a report by UK think tank Chatham House argues.
The report says the problem, unlike the usual India and China demand stories, is due to the lack of investment in production facilities. This, in turn, is due to oil company profits being passed on to shareholders instead of reinvestment in expanding production.
The solutions? There is none that can be implemented easily. The report is pessimistic and says that only a major recession can reduce oil demand growth. This would only delay a supply crunch that’s inevitable.
Supply-side solutions hold greater promise, but are politically rather difficult to achieve. Crude oil is concentrated in countries that are resisting sustained production increases. Even if they agree on production increases, they tend to offer oil at higher prices. The result is that few buyers are interested and it’s back to business as usual.