Analysts: Cheap oil may not last

Cutbacks mean less supply when recession eases

HOUSTON - All that money you're saving these days at the gas pump? You might want to put it in the bank.

The same cheap oil that's providing relief to drivers and businesses in an awful economy is setting the stage for another price spike, perhaps as soon as next year, that will bring back painful memories of last summer's $4-a-gallon gas.

The oil industry is scaling back on exploration and production because some projects don't make economic sense when energy prices are low.

When the world emerges from the recession and starts to burn more fuel again, and higher demand meets lower supply, prices will almost certainly shoot higher.

Some analysts say oil could eventually eclipse $150 a barrel, maybe even on its way to $200. In such a scenario, gasoline would easily cost more than the record high of $4.11 a gallon set last summer. Oil for February delivery fell 23 cents yesterday, to $48.58 a barrel on the New York Mercantile Exchange.

No one knows for sure, but some analysts say the spike could happen as soon as next year, perhaps in 2011 or 2012.

"I think those supply limits will come back to bite with a vengeance," said Sean Brodrick, a natural resources analyst at Weiss Research Inc.

High prices at the pump last summer - more than $4 per gallon for gas on average - helped slash demand for oil. From November 2007 to October 2008, Americans drove 100 billion fewer miles than the year before, according to government figures.

Oil giants like Exxon Mobil, Chevron, and ConocoPhillips have yet to reveal their 2009 capital spending plans, but analysts say even the cash-rich companies are likely to shelve some projects.

Smaller oil producers could cut spending by 30 percent, said Oppenheimer & Co. analyst Fadel Gheit. The majority of US crude and natural gas is supplied by smaller, independent companies, not the Exxons and Chevrons, and smaller producers have been forced to pull back because of frozen credit markets.

All this comes as the Organization of Petroleum Exporting Countries, which controls about 40 percent of world crude supplies, embarks on its biggest single production cut ever.

It adds up to another round of price shocks for consumers that's probably inevitable, said Bruce Vincent, the president of Houston-based Swift Energy Co., an independent producer.