World oil prices should average 25 dollars a barrel two to four years from now because of limitations on refining capacity, Merrill Lynch oil analyst Michael Rothman said here Monday.
Rothman predicted that a recent decision by the Organization of Petroleum Exporting Countries to boost production would have little impact on current prices given constraints faced by refiners.
"It's the first time that every part of the business has capacity constraints," Rothman told a conference here during annual meetings of the World Bank and the International Monetary Fund.
Such limitations are likely to last two to four years, the time it will take for refineries to be built or expanded, he said.
In the United States, according to Rothman, it takes four years for a refinery to be built and to become operational.
He attributed problems encountered by US refiners to increased restrictions on automobile emissions that entail costly modifications in refining practices.
Although their profit margins have been reduced, refiners -- under pressure from consumers -- have not cut back on production of gasoline. They have instead scaled back on domestic and diesel fuel.
But lower profit margins have led to reduced investment, as people are reluctant to put their money into an industry that is coming under stepped up regulation, according to Rothman.
Under such circumstances, he added, production increases will not lead to more oil products on the market and lower prices.
For the moment, markets have adopted a "Show me that oil" attitude, he said.
In addition many OPEC producers have reached their maximum output levels.
"The system is running very tight," Rothman observed.
"Each time there's a problem -- a tanker arriving late, an incident in a refinery -- the market reacts sharply." -- PRAGUE(AFP)
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