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Other members of the Organization for Petroleum Exporting Countries, such as Venezuela and African nations, will struggle to keep up, because of political instability and difficulty attracting investment in new oil fields. OPEC may soon face some difficult decisions if new supplies from non-OPEC countries push prices lower. The group restricts production by its members in order to keep global oil prices high. In recent years, prices have been so high that member countries have been able to produce all they want. If prices fall, however, members could be asked to cut production at a time when those countries desperately need oil revenue to fund domestic programs. "Pressure on OPEC is going to crank up," says Judith Dwarkin, Chief Economist at ITG Investment Research. It is unclear whether, or how far, prices will fall. The new oil in the Americas is expensive to produce because it is found in difficult locations
-- deep offshore, trapped in oil sands, or in tightly-packed rock. Lower prices would force drillers to quickly pull back, or risk losing money. That would reduce supplies, and send prices back up. Analysts say that if prices fall below $70 per barrel for a sustained period, investment in the most expensive new projects will slow. Average oil prices have been remarkably flat over the last three years. The price of oil averaged $95 per barrel in 2011, $94 in 2012 and $94 so far this year. That has kept average U.S. gasoline prices relatively stable too
-- averaging between $3.51 and $3.63 per gallon over the last three years. Tuesday's report had little effect on daily oil markets
-- oil closed down less than one percent to just over $94 per barrel. Dwarkin expects oil prices to average near $90 a barrel for at least the next two years. Oil demand is shifting as much as oil supply. Developing countries will soon, as a group, consume more oil than developed countries for the first time, according to the IEA. The Middle East and Asia will need more oil as their economies grow. At the same time, the historically big oil consumers
-- the U.S., Europe and Japan -- will use less. Overall, global demand is expected to rise 1.2 percent per year over the next five years. While the IEA report doesn't address the oil market after 2018, it does suggest that the technology that helped lead to a boom in oil production in the U.S. will eventually help other countries produce more oil. "It is impossible to ignore the possibility that current non-conventional technologies, as they spread and get both perfected and mainstreamed, could lead to a wholesale reassessment of global reserves," the report says.
[Associated
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