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Investment in oil industry to hit record high this year

03 June 2009 10:04 (UTC +04:00)

Oil prices, which lost more than $100 last year from a high in July, have climbed almost 50 percent this year to more than $60 on optimism about an economic recovery.

â€œCompanies are wary of finding themselves in a position where they have to play catch-up on investment when the upturn materializes,â€ Andy Brogan, Ernst & Youngâ€™s Global Oil and Gas transaction advisory leader, wrote in a report on Monday.

The global financial crisis and recession in the worldâ€™s largest economies has led to a decline in demand for fuel and electricity. The Organization of Petroleum Exporting Countries, responsible for 40 percent of global crude supply, cut production quotas as demand evaporated and prices fell.

â€œThe majority of national oil companies and the largest oil majors are planning to maintain or increase their level of capital investment through the down cycle,â€ Brogan wrote.

National companies may invest more than $275 billion this year, with spending by so-called supermajors falling to $100 billion from $122 billion last year, according to the report.

Chevron Corp. will be the only one of the majors to increase investment this year, according to a chart in the report. Companies like Exxon Mobil Corp. and Total SA will leave investment unchanged, while Royal Dutch Shell Plc, BP Plc and ConocoPhillips will reduce spending, according to the report.
Limited Supply

The International Energy Agency, which in May cut its oil- demand forecast for a ninth consecutive month, has warned that oil prices may rise in the next five years as companies cut investment in new projects, potentially limiting future supply.

The Paris-based adviser to 28 nations cut its global oil demand estimate to 83.2 million barrels a day this year, down 3 percent from 2008, it said on monday in its monthly report for May. OPEC reduced its 2009 forecast, predicting oil demand of 84.03 million barrels a day.

National oil companies are set to have invested more than $598 billion by 2015. Still, Brogan wrote that oil companies may change their investment plans if the outlook for fuel demand shifts. Companies are evaluating some investments to which they have not yet committed to determine the impact of oil prices and falling project costs. Source: Bloomberg