13 June 2007

Oil's Well?

IEA expects oil prices to soar

World oil prices will rise sharply in the second half of 2007 unless OPEC increases production, the International Energy Agency said yesterday, as some analysts predicted that crude could top US$80 a barrel later this year. In a report, the IEA raised its forecast for crude demand this year by some 200,000 barrels a day, and lowered its expectation of non-OPEC supplies by 100,000. However, officials from the Organization of Petroleum Exporting Countries have so far resisted frequent calls from the IEA - which represents 26 industrialized consuming countries - to open the taps to reduce pressure on prices. "We would very much hope that OPEC production is at its seasonal low at the moment," David Fyfe, analyst at the IEA, said. "We definitely do need more crude oil." Despite a steep runup in prices, the agency forecast the global demand will increase by 2% this year - or 1.7 million bpd - to 86.1 million. China is expected to lead the growth, with oil demand there rising by 6.1%. Analysts said both crude oil and product markets remain tight, with inventories abnormally low for this time of year, though they are building ahead of the peak driving season. "Global markets on the global oil side have tightened up quite a bit," said Bart Melek, a commodities analyst with BMO Nesbitt Burns. "I do think we're going to get $70-plus crude as summer driving season peaks." But he added that, unless OPEC increases production, the market will be undersupplied in the second half of the year. "I think we could easily get to $80, depending on the circumstances of course," he said, adding geopolitical tensions between the US and Iran, or hurricanes in the Gulf of Mexico could spark price spikes.

Despite the bullish reports, crude prices fell yesterday, as traders anticipated a US Energy Information Agency inventory report that it expected to show a modest increase in stocks. But that relief could be short lived. Francisco Blanch, a commodity analyst with Merrill Lynch, said OPEC production is now at its lowest level in three years, after steep production cuts earlier this year. But he said demand will outstrip supply with the outset of the summer driving season, and global inventories will be drawn down rapidly. "OPEC needs to ramp up production to meet the shortfall, and fast!," the analyst wrote in a report yesterday. Without a production increase, any minor supply disruption could cause prices to spike above $80 a barrel in the second half of this year, he said. Blanch recently raised his long-term oil price forecast - covering 2009 and beyond - to $60 a barrel for Brent and West Texas Intermediate grades, up from $47.50 previously. In adjusting his forecast upwards, he cited strong global economic growth, improved discipline among OPEC members, lower-than-expected non-OPEC supply growth, and the apparent unwillingness or inability of consumers to reduce demand in the face of high prices.
(Globe and Mail 070613)

"OPEC needs to ramp up production to meet the shortfall, and fast!"

Hmmm...makes you wonder, eh? Why wouldn't those penultimate capitalists, the rulers of OPEC, not want to be dumping as much crude on the market as they can right now at current spot and futures prices? Sure it would cause supply increases and thus lower the price, but it is controllable. Everyone non-OPEC has been wanting them to open the spigots more, but for some reason OPEC won't do it. Do you think maybe it's because they CAN'T?

BP reduces oil reserves estimate

BP has lowered its estimate of the world's proven oil reserves, for the first time in more than a decade, in its annual Statistical Review of World Energy published on Tuesday. This year's review, which covers the period to the end of 2006, included an assessment of the size of Canadian oilsands for the first time. They stand at 163.5 billion barrels. Global reserves are more than sufficient to meet current production levels for more than 40 years, although accessing the oil is getting tougher due to high exploration and production costs and also to more state control of production, BP said. World reserves stood at 1.208 trillion barrels at the end of 2006, fractionally lower than 1.209 trillion at the end of 2005. The one billion-barrel reduction reflected declines in reserves in Mexico and Norway, partly offset by increases in Russia and Brazil. Christof Ruhl, deputy chief economist at BP, said the last time the annual reserves figure had fallen in the statistical review was in 1990. Ruhl said the overall 2006 figure could be revised upwards as more data became available. BP's original figure for 2005 had been 1.200 trillion barrels until it was revised upwards after more countries published reserves data.
(Calgary Herald 070613)

Notice how they don't include projected consumption levels? This article may make it sound like everything's fine. If they added projected increases in consumption (currently estimated at 2% annually -- 50% increase over the next 20 years), it would quickly show that demand destruction is required, and probably inevitable very soon since the current year is where it is expected demand will outstrip supply (and why the price is going forever up and up from this point on).

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