NEW YORK (The Street) -- When a massive truck slams on the brakes to avoid a crash, it takes awhile for it to get back up to highway speed again.
That, in essence, is the problem oil companies will face when they want to increase production if supplies start to fall short. The selloff in crude oil has put drilling on hold. Unless more drilling resumes soon, a surplus of 1 million barrels a day will be exhausted. John Hofmeister, a former president at Royal Dutch Shell (RDSA) , predicts that will happen by the summer and will send prices up to $80 a barrel.
"When that cost correction comes into being, it takes a long time to turn that around," Hofmeister said. He pointed to 400 rigs shut down during the past three months, and Schlumberger (SLB) and Baker Hughes (BHI) laying off a combined 16,000 workers.
"This is what the industry does when there's too much oil," said Hofmeister, founder and chief executive of Citizens for Affordable Energy , an organization that promotes natural gas as fuel for transportation.
One reason current supply won't last is because existing oil wells are at risk of "natural declines," Hofmeister said. And just as it will take time for production from the drilling shutdowns to wind down, it will take time to resume canceled and deferred projects. That means there's nothing oil companies can do to prevent a sudden upswing in price.