The oil price will shoot back through $100 a barrel as soon as economic conditions return to normal, and will break through $200 threshold by 2030, say officials at the International Energy Agency.

The world energy watchdog is certain the “era of cheap oil” is over, according to research due to out next week. Indeed last year it had predicted the oil price would reach $108 in 2030 so has more than doubled its long-term price target.

“While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over,” says the IEA in the World Energy Outlook report, obtained by the Financial Times ahead of its release next week.

Oil prices have endured a rollercoaster ride this year during some of the most volatile trading on record. Crude climbed relentlessly from $96 a barrel in January to a record $147 by mid-July, spelling misery for drivers.

Households also suffered as wholesale gas and electricity prices – which are linked to those of oil – soared to record levels and were swiftly passed on in higher fuel bills. Oil’s rise was also a main driver for soaring inflation in the UK, which doubled in six months to nearly 5%.

But the intensification of the financial crisis this autumn has depressed the oil price to $60-$70 a barrel – today Brent crude was off 1% at $65.

As a result, the AA estimates that average UK petrol prices have fallen back from a peak of 119.7p per litre in mid July to 97.44p, reducing the cost of a 50-litre tank of petrol by about £11. It complains about a lack of “transparency” as lower prices are not passed on in full to consumers – but rises are.

But the IEA cautions the low oil price will be short-lived. It expects oil to trade at an average of more than $100 a barrel between now and 2015 as supply shortages become a reality.

According to the report the IEA believes the oil majors will struggle to maintain the status quo as older fields dry up. They need a “new” Saudi Arabia – which pumps 7m barrels a day – to offset predicted shortfalls, it said.

The organisation believes output from the world’s oil fields is declining at 9%. “Current global trends in energy supply and consumption are patently unsustainable,” the report states.

This problem is magnified as the oil giants are pulling out of projects in places like Kazakhstan and Canada as the low price means costly excavations are no longer viable.

The IEA estimates that firms like Shell and BP need to invest $350bn a year to replace older wells as well as meet demand from fast growing economies like China.

SOURCE ARTICLE