IEA Says Oil Price High Enough to Invest (in Theory)

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"Oil. . .is costly enough to ensure investment even in the most expensive sources of crude"

Oil, which hit a year-high above $80 a barrel on Wednesday, is costly enough to ensure investment even in the most expensive sources of crude, but the industry still faces big challenges, the IEA's chief economist said.

The IEA has voiced concerns of a possible price spike if insufficient investment is made in new sources of oil to keep pace with demand.

"Oil prices of $78 are high enough for almost every single drop of oil we have in the world to invest, if they were to stay at these levels, if producers were to believe that the prices will stay at these levels," said Fatih Birol at a U.S.-China clean energy conference.

International benchmark U.S. crude traded close to $78 early on Wednesday, but later shot above $80 to its highest levels since October last year.

After hitting a record high of nearly $150 a barrel in July 2008, oil prices collapsed to just above $30 in December. Coupled with the impact of the financial crisis, one result was the oil industry postponed some exploration projects.

Abdullah al-Badri, secretary general of the OPEC, said the group's members froze about 35 projects, but this week he said seven of them had been restarted.

Pain Not Evenly Spread

For OPEC countries, dominated by national oil companies, the deciding factors tend to be demand and price; but for the commercial sector, credit is also an issue.

Birol said he believed the medium and small companies had been most prone to curbing investment this year and he believed most of these still had "major difficulties" in accessing credit because of the financial crisis.

For them, higher oil prices would not be enough to allow new production.

"The current situation will not help them substantially to improve their investment plans," he said.

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