Oil falls 'will cause petrol shortage'

28/11/2008

While many users of derivatives such as petrol, DERV and heating oil may welcome falling oil prices, the collapse of crude could cause a severe supply-side crunch within two years.

Such is the warning of Michael Meacher, Labour MP for Oldham West and Royton.

In an article for The Guardian's Comment is Free website, he warns that with prices falling, millions of pounds of investment in the oil industry will be scrapped, a scenario which could lead to old reserves drying up and no new fields capable of making up the shortfall.

In such a scenario, the price of crude - in addition to derivatives such as heating oil - could increase rapidly as there is a scramble to secure dwindling reserves.

Mr Meacher explained that prices of $90 a barrel are need to support continued oil production.

"A current price as low as half that critical level is already forcing many companies to drop oil projects and the banking crisis is also squeezing project financing for foreign oil companies," he stated.

Oil has fallen considerably since reaching a peak of $147 a barrel in July.

Heating oil prices have also receded in line with the dramatic drops in crude prices.