Oil prices could soar above previous records within "the next two or three years" because of a lack of exploration capacity now, said the Saudi oil minister in Rome on Tuesday.

Saudi Arabia's Minister of Petroleum and Mineral Resources Ali al-Naimi said current low prices are discouraging the search for new oil in the ongoing recession. Energy prices, however, can jump quickly with the greater demand associated with an economic recovery, he said.

"We are maintaining our long-term focus rather than being swayed by the volatility of short-term conditions. However, if others do not begin to invest similarly in new capacity expansion projects, we could see within two to three years another price spike similar to or worse than what we witnessed in 2008," al-Naimi said in prepared remarks at the two-day summit in Italy.

Saudi Arabia, the world's largest oil pumper, has already said the country has no intention of adding to its 2009 capacity of 12.5 million barrels a day.

In the summer of 2008, oil prices hit a record of $147 US a barrel but since have plummeted along with the world's economic prospects.

Now, crude prices are hovering around the $60 barrel level, not sufficiently high to entice companies to start searching for new reserves, experts said.

No give

Oil values can react very quickly to higher demand in a time when there is little capacity to increase production, according to the International Monetary Fund.

"Changes in underlying economic fundamentals can lead to larger oil price changes in the short term than in the medium term," said John Lipsky, the IMF's first deputy managing director, speaking at the same conference also on Tuesday.

Consumer demand, whether it is companies looking for increased manufacturing capacity or individuals taking cross-country drives, does not drop very quickly in response to higher oil prices.

This economic concept, known as inelastic demand, often results in prices continuing to rise swiftly until the usage growth slows, economists noted.

In addition, oil has become vulnerable to various supply disruptions but not ones related to weather or civil unrest, Lipsky said.

Analysts have pointed to the lack of refining capacity as one persistent problem in getting oil from the ground into cars and plants.

No new capacity

Both Lipsky and al-Naimi said the crisis is not coming this year or even in 2010. Instead, the International Energy Agency estimates that oil and gas exploration and production will fall 21 per cent in 2009.

For sector watchers, however, the lack of spending in the short run will cause energy consuming nations difficulties in the longer term.

"The saga of North American oil is well underway. The current financial crisis, triggered in part by the global oil crisis, is only serving to mask the decline of oil supply in this region," said Gregor MacDonald, an independent oil and gas analyst in April.

Back then, MacDonald predicted that oil could reach $200 a barrel by the time of the 2012 U.S. presidential election.

Light, sweet crude for July delivery traded at $61.82 a barrel, up 15 cents, in the afternoon session Tuesday. Oil reached as low as $59.53 earlier in the morning.