It looks unlikely that global production will go up substantially in the short term. The Organisation of Petroleum Exporting Countries is currently producing about 32.08 mb/d against the sustainable capacity 35.12 mb/d. The supply problem will not get solved even if it operates at full capacity. This means we can expect prices to remain high.
Mounting production costs. High prices should make producers go for higher output. So, why is that not happening with oil? CLSA, a leading brokerage firm, noted in its oil sector report late last year that oil is not in short supply but the cost of production is going up while cheap reserves are declining.
Increasing cost is also resulting in delays and cancellations of projects. Some experts estimate that oil production is viable today only at prices above $60
A barrel
Constraints in boosting capacities. International oil supply is also getting impacted by the absence of capacity expansion of oil production.
This, again, is contributing to the pressure on prices. Development of oil production capacities takes time and huge investments. So, producers can't increase the output, even theoretically.
Image: A customer fills his scooter | Photograph: Sajjad Hussain/AFP/Getty Images
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