Got peak?

Oil's record run past US$114 raises questions of a peak

World oil prices leaped to an all-time high above US$114 per barrel in after-hours trading Tuesday, but analysts disagreed on whether the highly sought-after commodity will continue its amazing run through 2008. Two internationally respected energy market experts in Calgary for an oil conference this week agreed oil could continue to rise in the short-term, but the threatened recession in the US makes the long-term picture bleak. "We could see oil prices peaking as early as the start of the summer. We could see it in the second half of this year," Julian Lee, London-based senior energy analyst at the Centre for Global Energy Studies, told the Herald. However, he also predicted oil prices will fall, perhaps dramatically, if the US slips into a recession, an event that would cause a global slowdown. Lee expects oil to peak at about $120. Adam Sieminski, Washington-based chief energy economist for Deutsche Bank, said US demand for gasoline is flat and may be shrinking, as is the economy in general. Deutsche Bank is forecasting $97 to $98 per barrel as an average oil price this year and $102 to $103 in 2009. In sharp contrast, Calgary analyst Peter Linder, president of DeltaOne Capital Partners, said the oil rally will shrug off US economic problems. "That's what everybody's looking at, but there's a world outside the US," he said. "I think there's a 50-50 chance we'll reach $125 by Labour Day," Linder predicted. He said oil prices above $100 US will be the norm for the next 10 to 20 years.

West Texas Intermediate crude for May delivery closed up $2.03, or 1.82%, at $113.79 on the New York Mercantile Exchange. It was driven by a combination of supply issues, rising diesel demand in China and persistent dollar weakness. The high price of oil means opportunity for Alberta according to Bruce Rigal., Deutsche Bank's coo of global banking. Rigal, who is a graduate of the University of Alberta and is now based in London, was in Edmonton on Monday, delivering the Princeton Developments distinguished lecture in finance at the University of Alberta. Having witnessed first-hand the growing economies in China and India, Rigal sees no respite from high oil prices. From his perspective, the growing middle classes in both countries will continue to fuel demand for oil and underpin the current pricing environment. He also folded Russia into his analysis, having spent part of his investment banking career at Deutsche Bank doing business there. The future bodes well for Alberta, says Rigal, because of the oilsands, but the province must capture more of its wealth -- one day, he said, the resource will run out. He suggested that one of the ways for Alberta to make the most of the energy boom is to use the Heritage Savings Trust Fund as one of the key vehicles to secure Alberta's future.

In other oil news, the Organization of the Petroleum Exporting Countries continues to maintain that factors such as the weakness of the US dollar, speculative trading and political tension are lifting prices, not a lack of oil. In it latest Monthly Oil Market Report OPEC stated, "The fundamental picture in the second quarter of 2008 appears to be in line with the typical seasonal pattern for this time of year. Current OPEC production . . . will be sufficient to both meet demand growth and contribute to further stock builds."
(Calgary Herald 080416)

No surprises here.