According to a study conducted by the Cambridge Energy Research Associates (CERA), all the major oil companies worldwide are under intense pressure from spiraling industry costs that are adding to the upward pressure on global oil prices, as reported by TheAge.

CERA disclosed that the cost to take advantage of new oil and gas projects increased 6% worldwide over the past six months and it might rise in coming months. The cost in building oil refineries and petrochemical plants increased 6%, as a result, the oil production costs surged 8%. Moreover, the cost of producing oil and gas has doubled since 2008 and the majority of rise has come in last three years.

According to the industry analysts, rise in steel and raw material prices also accounted for skyrocketing oil and gas prices around the world. Further, due to high oil demand, there has been a shortage of labor, raw material and equipment, which together escalated production costs. Depreciating value of dollar is also responsible for the sharp rise in cost of oil production worldwide.

Moreover, the cost of underwater equipment used for deepwater production has gone significantly up along with increase in cost of transportation and raw material. The rise in oil prices is building pressure on transportation and energy industry by increasing the inflation. Consequently, oil companies hold their projects that reduce production, ultimately leading to low supply, and thus, hike in oil prices. Another big factor that severely hampered the oil producing companies is rising labor cost due to shortage of skilled personnel worldwide.

CERA also said that the oil production cost is likely to remain high in coming months until there is a sudden or dramatic change. If steel prices remain high, then oil prices will also remain higher.

A Senior Research Analyst at RNCOS said, “Rising oil production cost and oil prices are directly proportional to each other, pushing each other higher and higher. Thus, oil industry should focus on its labor system, which is suffering from inflation, to increase the oil production. This will help companies to focus on their oil production costs.”