Commodities: Analyst sticks to his forecast of oil at $105 a barrel

By Alejandro Barbajosa Bloomberg News

MONDAY, DECEMBER 19, 2005

LONDON Arjun Murti, the Goldman Sachs Group analyst who roiled oil markets in March by saying crude could reach $105 a barrel, now says that forecast might be conservative if the "peak oil" theory is right and world supplies are running out.

The theory, which postulates that the world's oil supply is close to an irreversible drop, is no longer "on the fringes" of the market, according to a research report by the New York-based Murti, who forecasts oil prices of between $50 and $105 a barrel until 2009.

The UBS analyst James Hubbard, a former oil engineer at Schlumberger, has said an inevitable decline in supply will start sooner and be worse than expected unless investment is increased for many years.

A jump above $105 a barrel "is possible if we don't invest the right amount of money," Hubbard said in an interview in London.

"There will be a peak in production earlier than expected, and that post-peak decline will be more dramatic than currently assumed unless there is a sustained increase in investment in oil and gas production, greater consumer efficiency and alternative energy sources."

The Saudi Arabian oil minister, Ali al-Naimi, and the president of Exxon Mobil, Rex Tillerson, have both said oil supplies will last for decades. But energy traders are increasingly debating the amount of available crude after rising demand from China surprised suppliers, who had failed to spend on new pipelines, rigs and refineries.

Tillerson in September told the World Petroleum Congress in Johannesburg that a U.S. Geological Survey estimate of two trillion barrels of conventional oil reserves still to be recovered is conservative, with the range of possibility as high as seven trillion barrels. Less than a trillion barrels has been pumped in the world so far.

Investors who back the peak oil theory, like Boone Pickens, a Dallas-based hedge fund manager and former oil executive, have fueled the price rally of the past two years, when oil almost doubled in price to reach a record $70.85 in August. Prices ended last week at $58.06 a barrel in New York.