Underinvestment Will Push Oil Prices as High as $80 in 2 Years: Tisch

Jim Tisch worries about the west's ability to serve global demand down the road.

In the wake of the International Energy Agency's report on Monday disclosing that the global oil glut will last well into 2017, insiders are warning that under investment by drilling companies will result in them falling well short of meeting demand when the glut diminishes.

Speaking on Bloomberg television, Jim Tisch, president and CEO of Loews Corp, said he thinks oil over the next two years will climb to $70 to $80 per barrel: "The industry is dramatically under investing in production capacity now, and as a result there's not going to be enough production two years from now to satisfy the worldwide demand, and so prices are naturally going to go up."

Tisch added that even though offshore rigs can currently be chartered for less than their operating costs, drilling companies "aren't biting"; instead, he says, they're more concerned about "paying their dividends and getting through the year than what's going to happen 2 to 5 years from now to their production capacity."

While Tisch's concern – or his prediction of oil in the $80s – is nothing new, the IEA report seems to have kindled another wave of concern about how the glut is influencing producers.

Citing IEA figures that spending on drilling projects has fallen from $780 billion to $450 billion and that new oil discoveries are running at their lowest rate for 60 years, Ambrose Evans-Pritchard, international business editor for The Daily Telegraph, worries that a major spike could be building up.

He writes, "The IEA said global spare capacity is wafer-thin at just 1.7 million barrels a day, stripping out idle capacity in the war-torn trio of Libya, Iraq, and Nigeria; this implies that the market will swing from glut to scarcity with lightning speed once the energy cycle turns."

He added, "For now, the world is still swimming in oil, and [the] iron law of the oil cycle is that the longer this goes on, the greater the rise in crude prices later."

Meanwhile, for those who prefer focusing on the short-term, the IEA report and a similarly themed report from the Organization of the Petroleum Exporting Countries contributed to a 3 percent decline in prices on  Wednesday for the second day in a row, with Brent falling to $45.85 and West Texas Intermediary dropping to $43.58.

If nothing else, the gloomy reports have somewhat dampened the chatter regarding the impending freeze talks in Algeria later this month; Julian Lee, oil strategist for Bloomberg First Word, credits the reports for putting "the nail in the coffin of this idea that the market is rebalancing on its own."