Inadequate investment in oil production in the Middle East and North Africa is threatening to push prices as high as $176/barrel in 2015 - rivalling their heights in the months before the global financial crisis struck in 2008.
Taking inflation into account, the $176 peak would equal $150/barrel today, a real increase of about 50% from the $102 average seen so far in 2011. Jet kerosene prices closely follow crude prices.
International Energy Agency chief economist Fatih Birol, in London to present the IEA's World Energy Outlook report for demand and production through 2035, warned that the Arab Spring revolutions and unrest have created a political situation in the region in which available resources could easily be diverted from developing oil production to social needs.
Regional governments may also find they are unable to attract sufficient foreign assistance to invest the $100 billion a year in new production from 2011 to 2015 the IEA believes will be necessary to keep up with growing global demand. If they miss that target by one-third, which Birol believes is possible, prices are set to surge, as 90% of the global increase in oil demand will have to come from the Middle East and North Africa region.
Airlines may be better placed to withstand a severe oil price shock than they were in 2008. Espirito Santo equities analyst Gerald Khoo says airlines "learned a lot from the 2008 spike" and should cut capacity early.
Source: Flight International
