$70 oil or higher might be the new reality

[peejay 327]

This time, $70 oil just might stick

Relentless demand and a tight supply make what was once record territory the new reality

By KRISTEN HAYS

2007 Houston Chronicle

The price of oil is drifting near the record-high close of $77.03 reached a year ago today, and it may not take a hurricane to blow the price back into record territory.

A mix of tight supply, ever-growing worldwide demand and concerns about access to politically volatile oil-rich regions has pushed prices to near-record levels even without weather-related problems to disrupt production.

If expectations pan out that supply will trail demand in the face of robust economic growth, oil prices could hover around $70 a barrel through the end of the year or longer, experts say.

"The price of oil will continue to go up because we are not falling down in oil demand," said Michael Economides, an expert on global oil at the University of Houston. "Seventy-five-dollar oil is the reality you have to live with."

He also said that with so little wiggle room, triple-digit prices are a headline away.

"Think of this one: Al-Qaida manages to disrupt Saudi Arabia oil production. That's $130 oil," Economides said.

The Paris-based International Energy Agency issued a report this week projecting an increasingly tight oil market through 2012 despite four years of high oil prices.

The report said worldwide oil demand will outstrip supply growth as spare capacity of the Organization of the Petroleum Exporting Countries falls to minimal levels, squeezing its ability to fill the gap.

The agency predicted worldwide demand will rise by 2.2 percent annually for the next five years, primarily because of hunger for energy in booming economies in Asia and the Middle East, particularly China and India.

It also forecast global economic growth will push the demand for oil from 86.1 million barrels a day this year to 95.8 million barrels a day in 2012.

OPEC produces about 31 million barrels a day. The report projected its production would rise to 38.36 million barrels a day in the next five years, which would limit its spare capacity to about 1.5 million barrels a day.

The report also projected non-OPEC supply to grow by 1 percent each year — a 0.4 percent drop from most of the last decade.

"There is no slack in the system and there are no quick fixes," said Bill Herbert, an analyst with Simmons & Co. International in Houston. "Oil prices over time will likely continue to be considerably stronger than many care to believe."

Rick Mueller, with Energy Security Analysis in Wakefield, Mass., said the International Energy Agency's projection of 2.2 percent annual growth in demand may be too aggressive in hopes of sounding an alarm loud enough to generate concern. But he agreed that a tight market is here to stay because of various factors, including:

• A labor crunch in the oil industry that contributes to delays in getting new production projects up and running. Companies are feeling the effects of personnel cutbacks in the 1990s, when oil prices were less than $20, because they now have a generation of engineers nearing retirement without ready replacements.

• Diminished access to oil in countries that control most of the world's reserves, particularly Venezuela, Iran and Russia.

• Increased prices of drilling rigs and supplies, such as steel tubing, which hike production costs.

• Constrained refining capacity because of outages and high costs of expanding or building new, both in the U.S. and elsewhere.

• Geopolitical issues, such as unrest in Nigeria, that generate fear of supply disruptions.

Also, the Gulf may not avoid major hurricanes as it did last year, and a storm would add more upward pressure on prices, he said.

Mueller said the only thing that could really pull down prices would be some sort of global recession that hits demand, "and that does not appear likely."

"I'd expect to stay at or above $70 through the end of the year," he said.

But Michael Lynch, president of Winchester, Mass.-based Strategic Energy and Economic Research, said prices could fall once the peak summer driving season ends in September. On July 14 last year prices closed at a high of $77.03, but ended the year at $61.

"When the driving season is over, fear starts to decline," Lynch said. "I think there's a pretty good chance we'll see another September-October price drop this year."

Analysts said prices already might have reached last year's record, or even hit $80, but for a glut of oil at the Cushing, Okla., hub of West Texas Intermediate crude.

West Texas Intermediate, a staple U.S. benchmark quoted on the New York Mercantile Exchange, usually trades about $2 above the world's other main benchmark, North Sea Brent crude quoted on London's ICE Futures exchange.

But for several months it has lagged behind Brent because U.S. refinery outages have led to the Cushing hub's oversupply.

If the glut were gone, "Right now, we'd have about an $80 market," said Philip Verleger, an oil economist who heads PK Verleger in Aspen, Colo.,

Other analysts agreed. Economides said the British benchmark now more accurately reflects international oil activity.

On Friday, crude oil for August delivery rose $1.43, or 2 percent, to close at $73.93 a barrel on the New York Mercantile Exchange, an 11-month high.

Brent crude for August delivery settled up $1.17, or 1.5 percent, at $77.57 barrel on the ICE Futures exchange.

http://www.chron.com/disp/story.mpl/front/4967704.html

[Jasman0717 9]

I just watched gas go up six cents in two days here and figure it is going to go much higher. Think I'll get me a horse

[w¡n9Nµ7 §£@¥€r 123]

I just watched gas go up six cents in two days here and figure it is going to go much higher. Think I'll get me a horse

Horses need hay and demand for hay is probably sky high too because of all that ethanol production.

[AnaAndDaniel 0]

I just watched gas go up six cents in two days here and figure it is going to go much higher. Think I'll get me a horse

Horses need hay and demand for hay is probably sky high too because of all that ethanol production.

plus, they are gross polluters. you need to hire a pooper scooper in some neighborhoods too.

Daniel

:energetic:

[Jamie76 0]

I'm glad that I only have a 9 mile drive to work and that I just bought a Toyota Corolla. You are definitely going to see the price of oil go up before you ever see it go down. $80 oil will be common here pretty soon I think.

[peejay 327]

You are definitely going to see the price of oil go up before you ever see it go down. $80 oil will be common here pretty soon I think.

And I find it laughable that the pandering politicians in D.C. give the gullible the impression that they can do something about it with the lame legislation that they have passed into law.

Energy policy? We ain't got no stinkin' energy policy! What little energy policy we do have isn't in the realm of reality. It's mainly opiates for the masses to give them the impression that all is under control.

[GaryC 7]

The reality is there is nothing the government can do to lower oil prices. OPEC sets that and we have little to say about it. All the government can do is blame the oil companies, which in the end accomplishes nothing.

[Jamie76 0]

It's not only OPEC, it's the hedge funds that drive oil prices too. Butterfly lands on an oil platform in the oil rich Nigerian Delta? Prices skyrocket. It's a lot of BS.

[peejay 327]

The reality is there is nothing the government can do to lower oil prices. OPEC sets that and we have little to say about it. All the government can do is blame the oil companies, which in the end accomplishes nothing.

The one thing that government could and should do is to mandate conservation standards to reduce consumption. I'm sure there will be some whining, but as the old saing goes, "No pain...no gain." Cut demand and the price will drop.

To me it is a national security issue when we import 60+% of our energy needs (and growing). Blood for oil? Why should we let it come to that (as if we aren't there already)? Why else does any US administration give a rat's azz about Saudi Arabia and the Middle East? OIL.......that's why.

[AnaAndDaniel 0]

if a good percentage of back end office workers could work from home, it would help.

bosses don't like that idea though.

Daniel

:energetic:

[Ban Hammer 13,964]

if a good percentage of back end office workers could work from home, it would help.

bosses don't like that idea though.

Daniel

:energetic:

ain't that the truth? it's not their personal empire if they can't see you