LONDON - After oil prices crashed to $10 a barrel in 1998, they more than tripled two years later as lower investment and higher demand strained supply.
The signs are the industry, now reeling from a $100 crash, is still locked in a cycle of boom and bust.
A difference this time is high prices have permanently curbed energy use in many developed countries and the question is the extent to which Asia will continue to consume.
"Demand will eventually recover and delays in supply investment may be just sowing the seeds of a future price rally," said Harry Tchilinguirian of BNP Paribas.
Back in 2000, world demand reached more than 76 million barrels per day (bpd), up from nearly 74 million bpd in 1998 when low prices led to reduced investment, though much less than current consumption of roughly 85 million bpd.
For now, the likely scenario is that oil use in China, the world's second biggest energy user after the United States, will continue to increase, although reliable data is elusive.
The country's economic growth has slowed sharply from nine percent in 2008, but the International Monetary Fund has still forecast its economy will expand by 6.7 percent in 2009.
Whether the pattern is broken could depend more on China's ability to restrain its energy use, as developed countries did in the past, than on the extent to which oil firms continue investing as profits shrink.
"One mitigating factor over the medium term is the extent of demand destruction we will see over the next five years. Will we have a repeat, notably in energy intensive emerging markets?" asked Tchilinguirian.
The Paris-based International Energy Agency (IEA), adviser to consumer countries, has warned low prices will be followed by a supply crunch across the energy complex and more price spikes.
Even assuming no growth in oil demand, it has said the world needs to bring online an extra 45 million bpd by 2030 to compensate for declines in aging oilfields.
"There are three parameters. How many projects are going to be postponed, when will the economy rebound and how will demand respond?" Fatih Birol, chief economist at the IEA, told Reuters.
He predicted the only regions where investment would continue to bring on new production, with oil at current levels of around $40 a barrel, were the Middle East and North Africa (MENA), where international firms are restricted in their access.
"It makes sense to invest if oil will stay at $40 in MENA countries, mainly because there are very low production costs of between $10 and $20 a barrel," he said. Elsewhere, the cost of bringing oil onstream can be anything up to around $80 for Canadian oil sands, which experienced some of the first project delays in the latest round.
Even members of the Organization of the Petroleum Exporting Countries that control the cheapest production have postponed 35 projects, the group's secretary general said this month.
Of the oil majors, an executive at the biggest, Exxon Mobil Corp, said it would not cut spending in new production.
"The lower price environment has had no impact whatsoever on our investments," Russell Bellis, exploration director for Europe, Russia and North Africa, said on Monday at the start of the IP Week oil industry meeting in London.
In theory, there was a price that could force the company to cut investments, Bellis said, but added Exxon's projects were based on very conservative assumptions and a long view.
"When prices fell to a low of $10 a barrel in 1998, we were investing way more than what we were making for a number of years -- so the strategy continues."
Others, under pressure to maintain shareholder returns, have said the price is a problem.
BP Chief Executive Tony Hayward said earlier this year oil needed to be between $60-$80 to ensure investment.
Some majors, such as Royal Dutch Shell, which have shrinking proven reserves and little or no growth in oil output, are still feeling the effect of the last round of spending cuts.
State-run companies can be sheltered from market forces and Brazil's Petrobras made headlines early this year because of its trend-bucking, multi-billion spending plans to exploit the country's huge and costly-to-extract reserves.
Government incentives can also ensure continued investment in renewable energy, which could in theory take some of the pressure off oil supplies.
The problem is those rival sources become less competitive when oil prices fall and that in turn helps to stoke a boom-bust cycle in the renewable energy sector.
The signs are the industry, now reeling from a $100 crash, is still locked in a cycle of boom and bust.
A difference this time is high prices have permanently curbed energy use in many developed countries and the question is the extent to which Asia will continue to consume.
"Demand will eventually recover and delays in supply investment may be just sowing the seeds of a future price rally," said Harry Tchilinguirian of BNP Paribas.
Back in 2000, world demand reached more than 76 million barrels per day (bpd), up from nearly 74 million bpd in 1998 when low prices led to reduced investment, though much less than current consumption of roughly 85 million bpd.
For now, the likely scenario is that oil use in China, the world's second biggest energy user after the United States, will continue to increase, although reliable data is elusive.
The country's economic growth has slowed sharply from nine percent in 2008, but the International Monetary Fund has still forecast its economy will expand by 6.7 percent in 2009.
Whether the pattern is broken could depend more on China's ability to restrain its energy use, as developed countries did in the past, than on the extent to which oil firms continue investing as profits shrink.
"One mitigating factor over the medium term is the extent of demand destruction we will see over the next five years. Will we have a repeat, notably in energy intensive emerging markets?" asked Tchilinguirian.
The Paris-based International Energy Agency (IEA), adviser to consumer countries, has warned low prices will be followed by a supply crunch across the energy complex and more price spikes.
Even assuming no growth in oil demand, it has said the world needs to bring online an extra 45 million bpd by 2030 to compensate for declines in aging oilfields.
"There are three parameters. How many projects are going to be postponed, when will the economy rebound and how will demand respond?" Fatih Birol, chief economist at the IEA, told Reuters.
He predicted the only regions where investment would continue to bring on new production, with oil at current levels of around $40 a barrel, were the Middle East and North Africa (MENA), where international firms are restricted in their access.
"It makes sense to invest if oil will stay at $40 in MENA countries, mainly because there are very low production costs of between $10 and $20 a barrel," he said. Elsewhere, the cost of bringing oil onstream can be anything up to around $80 for Canadian oil sands, which experienced some of the first project delays in the latest round.
Even members of the Organization of the Petroleum Exporting Countries that control the cheapest production have postponed 35 projects, the group's secretary general said this month.
Of the oil majors, an executive at the biggest, Exxon Mobil Corp, said it would not cut spending in new production.
"The lower price environment has had no impact whatsoever on our investments," Russell Bellis, exploration director for Europe, Russia and North Africa, said on Monday at the start of the IP Week oil industry meeting in London.
In theory, there was a price that could force the company to cut investments, Bellis said, but added Exxon's projects were based on very conservative assumptions and a long view.
"When prices fell to a low of $10 a barrel in 1998, we were investing way more than what we were making for a number of years -- so the strategy continues."
Others, under pressure to maintain shareholder returns, have said the price is a problem.
BP Chief Executive Tony Hayward said earlier this year oil needed to be between $60-$80 to ensure investment.
Some majors, such as Royal Dutch Shell, which have shrinking proven reserves and little or no growth in oil output, are still feeling the effect of the last round of spending cuts.
State-run companies can be sheltered from market forces and Brazil's Petrobras made headlines early this year because of its trend-bucking, multi-billion spending plans to exploit the country's huge and costly-to-extract reserves.
Government incentives can also ensure continued investment in renewable energy, which could in theory take some of the pressure off oil supplies.
The problem is those rival sources become less competitive when oil prices fall and that in turn helps to stoke a boom-bust cycle in the renewable energy sector.
