The Coming Oil Shock
One of the many reasons that oil prices spiked to $150 earlier this year is that in the 1990s, when prices were $12 a barrel, oil firms stopped looking for new reserves. That resulted in supply shortages and, when demand for oil picked up this decade, spiraling oil price inflation.
Now the same vicious cycle may be starting again. At a recent conference in Barcelona, Fu Chengyu, the head of the Chinese state oil giant CNOOC, said that he had met with the heads of 27 state oil firms, and that some 60 percent of planned exploration and development projects slated to begin in the next two years were being canceled because they were pegged to $70 oil (prices last week fell below $50). "Many [state companies] are panicked," he said. "They don't have enough cash to do all of the projects."
Russian giants Rosneft and Gazprom, which depend heavily on debt financing, are scaling back (Gazprom has canceled construction of a glitzy headquarters in St. Petersburg). Petrobras, the Brazilian company that last year made one of the largest new finds in a decade (in deep water off Rio) has delayed its review of the new area because of the credit crunch. No wonder the International Energy Agency has begun warning of a second supply shock thanks to underinvestment by state companies, which now control the vast majority of reserves.
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Rana Foroohar is the deputy editor in charge of international business and economics coverage for Newsweek. She conceives and edits a weekly section of breaking news stories, features and guest articles. She also writes economic cover stories and opinion pieces, and pens a bi-weekly column on the global economy.
Foroohar oversees Newsweek's team of global correspondents and stringers, directing their reporting on the week's business news. She edits regular columnists such as hedge fund manager Barton Biggs, Morgan Stanley emerging markets head Ruchir Sharma, Yale professor Jeffrey Garten and PIMCO CEO Mohamed El-Erian. She is in charge of economic coverage for Newsweek's annual Davos special issue, which features pieces by world leaders and economic thinkers, and also chairs panel discussions while at the World Economic Forum in Davos.
Prior to taking this New York based position in 2007, Foroohar spent six years as Newsweek's European Economic Correspondent based in London, covering Europe and the Middle East. During this time, she was awarded the German Marshall Fund's Peter R. Weitz Prize for transatlantic reporting. She has also worked as a general editor at Newsweek, a reporter for Forbes magazine, and as a writer and editor at various other national and international publications. Foroohar graduated in 1992 from Barnard College, Columbia University, with a B.A. in English literature. She is a life member of the Council on Foreign Relations.
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