Oil Companies Urged to Invest to Avoid Surge in Crude Prices

June 5 (Bloomberg) -- Oil companies must increase investment in production to prevent a surge in crude prices that may outstrip the records of last year, according to industry executives and officials.

Declining investment will naturally lead to production declines, making a Saudi prediction of oil at $150 barrel “realistic” within three years, Russian Deputy Prime Minister Igor Sechin said at the St. Petersburg International Economic Forum today.

Crude has fallen more than 50 percent since reaching a record of $147.27 a barrel in July last year as demand has declined in the world economic turmoil. Global investment in the oil industry may drop by as much as 21 percent this year, Sechin said, citing International Energy Agency estimates.

Should companies fail to invest, a demand crunch could drive up the price to $160 or even $200 a barrel, BP Plc Chief Executive Tony Hayward said, answering a question about surpassing last year’s prices. Hayward was at a session on the oil price attended by executives including OAO Gazprom’s Alexei Miller, who last year said oil might reach $250 a barrel.

Oil for July delivery traded for $68.88 a barrel, 7 cents higher on the New York Mercantile Exchange at 12:18 p.m. London time.

$70 - $80 a Barrel

The energy executives present said a fair price for oil would be $70 to $80 a barrel in an interactive vote. OAO Lukoil CEO Vagit Alekperov said there were no fundamentals for oil to rise higher than $70 a barrel or fall below $40.

Demand isn’t stagnant because of continuing urbanization and growing population, Hayward said.

A lack of investment is the main problem and it’s essential to avoid an energy crunch in the next two decades, Nobuo Tanaka, the IEA’s executive director said. While oil demand may not return immediately after the global economy recovers, fossil fuels will still account for 67 percent of energy until 2030, he said.

Long-term contracts would remove economically ineffective intermediaries in trade, cut transport costs and help stabilize prices, Sechin said. Oil producers should consider moving pricing from the U.S. dollar to a “multicurrency” approach to reduce currency risk, said the deputy premier, who is also OAO Rosneft board chairman.