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Carbon-battling investors are ushering in an era of permanently expensive petrol by forcing oil companies to slash their growth plans, as Morgan Stanley hikes its long-term oil price forecasts.
Big businesses are set to invest almost exclusively in managing and running down their existing oil fields rather than opening new wells because their major shareholders have gone green, according to Martijn Rats, an analyst at the investment bank.
Growing pressure to decarbonise, combined with a fear that peak demand is only around 15 years away, means that companies no longer want to increase supply despite relatively high crude prices of more than $70 per barrel.
As a result, prices are likely to stay high, keeping pressure on consumers, including drivers.
British petrol prices are at an eight-year high of an average 134.8p per litre, with diesel at 137.2p.
Similarly, gas prices are rising steeply, with the same concerns over the climate holding back investment in production. Energy prices surged to record highs in Britain and across Europe last week because of a severe squeeze on gas supplies.
Mr Rats said: “This year, the shareholder pressure on oil companies not to increase investment in oil projects is so strong companies are on the whole not increasing investment. There is almost no recovery in capital investment this year.”
Investment last year was down at $350bn (£253bn), compared with $850bn in 2014.
As new wells are long-term projects, companies are reluctant to invest more in a very uncertain political and business environment.
Mr Rats has hiked his 2030 price forecast from $50 per barrel to $60 because of the environmental shift.
He cited May this year as a key month. The International Energy Agency outlined a path the industry can take to net zero, a Dutch court ordered Shell to cut its carbon emissions in the coming years, and an activist hedge fund succeeded in placing more climate-focused directors on the board of Exxon Mobil.
Although painful for consumers, this should accelerate the move to other, cleaner energy sources as they will look more competitive when oil is expensive.
Mr Rats said: “If we need to wean ourselves off oil, one way of doing that is by having a period of higher prices
“There is nothing as effective to reduce demand for oil than higher prices. It really spurs the energy transition.”
The main risk to this forecast is if major oil nations in the Opec cartel decide they have to make the most of their reserves in the next 10 years and start pumping crude as fast as possible while it is still wanted.
This could send prices tumbling, but analysts think it is unlikely in the short term as the cartel is benefitting from a strong economic recovery that will keep demand healthy for the time being.
Experts at BCA Research said: “The likelihood that the global economic recovery will continue should encourage the Saudis, Russians, Emiratis and others to maintain production discipline to drain inventories and keep Brent crude prices above $60 per barrel.”
They expect prices to hit $80 a barrel by 2024 if Opec can remain disciplined.