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Oil prices slip below $70 a barrel

(Agencies)
Updated: 2008-10-17 09:36

From its inception the oil industry has gone through countless cycles, with oil companies cutting investments when prices fell. The price collapse of the 1980s forced companies to slash investments and sparked a wave of large mergers through the industry.

A tugboat pulls a fuel oil barge on the Long Island Sound in this aerial photo of Sept. 8, 2008 in New York. Oil prices slumped further on Thursday, with Brent crude sliding under 67 dollars a barrel, the lowest level for more than 15 months, as slowing energy demand took its toll, traders said. [Agencies]

Concerns that this pattern might be repeated were mentioned frequently during an industry conference in Venice last weekend, where oil executives said they worried that a prolonged recession, tighter credit, and lower energy consumption would mean slower growth in energy supplies in coming years.

The credit freeze has already forced some projects to be scaled back, some energy analysts and executives said. "This is a real test," said Jeroen van der Veer, the chief executive of Royal Dutch Shell, in an interview at the conference. "Some people will be overstretched and there will be some delays in some projects."

Over the past decade, growth in oil consumption has outpaced the ability of producers to meet that demand with more production. Many experts have predicted a new squeeze within the next five years that could once again propel oil prices over $100 a barrel.

The drop in prices has already created problems for oil producers. Iran and Venezuela both need oil prices at $95 a barrel to balance their national budgets, Russia needs $70, and Saudi Arabia needs $55 a barrel, according to Deutsche Bank estimates. Algeria's oil minister, Chakib Khelil, said on Thursday that the "ideal" price for crude oil was $70 to $90 a barrel.

In Russia, which is not part of OPEC, the drop in prices is threatening the country's ability to increase production. The Russian government has reportedly agreed to allocate $9 billion to its four major producers, Lukoil, Gazprom, Rosneft, and TNK-BP, to help them cope with investment needs amid the credit crisis.

In the United States, Chesapeake Energy, a gas producer, has recently indicated it would reduce its capital investments over the next few years in response to falling prices.

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