Oil prices are expected to rebound and exceed the 2008 peak level in the next decade as a result of strong demand and narrowing spare capacity, according to a prominent international energy studies centre.

But Cambridge Energy Research Associates (Cera) said the new price spike could again lead to a fresh collapse if Opec tightens supplies to keep prices high, thus largely widening the available output capacity.

In a study presented to the London energy conference last week and obtained by Emirates Business yesterday, Cera described the global oil market as complex and warned that the current global economic crisis and ensuing price collapse would make oil firms more careful in investing in new energy projects.

"As of late 2008, it is difficult to generalise about companies' expectations for future prices. Some expect – or hope for – a quick recovery above $100 others see $70-$90 as a sustainable range, and still others anticipate several years at or below $50," Cera said in the study, which was requested by the British Energy Department and the Saudi Oil Ministry.

"These differences are themselves likely to make an agreement between joint venture parties on starting new projects more difficult to reach. The unprecedented economic, financial, and oil market volatility of September-November 2008 are likely to make oil companies more cautious than they were previously about committing to large new long-term projects until they can see some sort of pattern emerging," the study added.

It said that many companies had already started to scale back their spending in real terms in response to lower oil prices and reduced production revenues.

It noted that the long lead times for exploration and new oilfield development would ensure that the impact on oil supplies of the current investment slowdown will be cumulative over the next several years.

"Eventually, as demand growth resumes, the oil market will tighten again. But how soon will this happen? It will depend on the speed and strength of recovery on the demand side and on the extent of investment cutbacks. In our reference case, the spare capacity margin would start to erode after 2013 and the market could again be very tight by 2018," Cera said.

"However, too deep an overcorrection could lead to a rebound in prices above the mid-2008 levels and measures to support the price in the short term could build up excess supply capacity to unsustainable levels and cause the next price collapse. It is not inevitable that oil prices will spike dramatically, but conditions for a spike could emerge at some point in the next decade. A key question is how can policy make this outcome less likely?"

The study believed what happened to the oil market in the second half of 2008 was a "real collapse in prices" after they lost more than $100 a barrel. "The crucial question arises: what will happen to the supply picture? Estimates of the outlook for the global economy and energy markets are reacting to fast-moving events. Specific metrics, such as economic growth, oil demand, and levels of production are subject to changes in the specifics," it said.

"The general anatomy of future supply capacity, production, and demand are, however, less volatile than the specifics."

Its figures showed the global oil industry would need to spend more than $150 billion (Dh550bn) per year on new oil supply over the next few years (from a total oil and gas spend of some $300bn per year) if industry costs do not decline.

Cera said its expectation of a 40 per cent decline could reduce the anticipated investment in new oil capacity to some $90bn per year.

"Faced with the potential for more violent swings in the oil price – resulting from timing effects and market reactions, all adding to the bias towards underinvestment that is created by volatility – it is only natural to ask if there are ways to remove this volatility," said Cera, which has offices around the world.

"If only producers could enjoy greater security of demand… If only consumers could rely on uninterrupted supply… if only inventories alone were sufficient to dampen price volatility and there were no need for the market to guess about future changes in spare production capacity… If only institutional investors were consistent in their demands on the energy companies in which they invest…"

"The oil market is too big, complex, diversified and international. There are too many participants with major national, economic, or commercial interests at stake. The lead times are too long and the supply side too 'lumpy.' There are also too many variables that can shock the market."

The study said it saw no escape from some degree of volatility in the oil market, adding that volatility may be an unintended side effect of periods of consensus about expected future oil prices.