October 28, 2007	Sunday	Shawwal 15, 1428

RIYADH, Oct 27: With crude whizzing past $92 a barrel, the global dependence on Middle East is coming under close scrutiny with emphasis on alternatives and the continued ability of Saudi Arabia in meeting the global demand coming under spotlight — once again.

Crude markets seem to be responding to a slew of economic and geopolitical forces, suggesting further big swings could well lie ahead. A report from

Oil Movements, a British company that monitors oil-tanker traffic, added to the worries of the already jittery market. The company’s weekly report said Opec shipments for the first 10 days of November appeared to be “well below the October equivalents.”

The report estimated that October Opec shipments were likely to be about

300,000 barrels a day more than their September level, “but early indications for next month are that there may be nothing more to come. The Oil Movements report caused ripples in large part because it dampened expectations that the Opec may boost output further next month.

So far the soaring prices have had a muted impact on the global economy as well as on energy demand. However, some countries such as Saudi Arabia fear that higher prices could send the US into recession, slackening the global thirst for oil.

With Saudi Arabia hosting the 3rd Opec summit in Riyadh mid-November, there were thus speculations the cartel may decide to open the taps further. These expectations appear dampened.

Coupled with the dwindling global stocks, this is a recipe for more trouble.

The International Energy Agency says stocks fell 33 million barrels, or

360,000 barrels a day, between July and September. That contrasts with an average third-quarter increase in stocks of 280,000 barrels a day during the past five years.In the meantime, the emphasis on alternatives is growing hitting feverish pitch. Issues of energy independence are coming to fore once again. Former

CIA director James Woolsey says the US has become dangerously dependent on foreign oil and developing transport fuel from agricultural products is in its national security interest.

Speaking last week at the Oklahoma Bio-fuels conference he said: “The people who produce large amounts (of oil) have a lot of leverage that we don’t want them to have.” The way to break the stranglehold, he said, is to develop alternative fuels. He predicted the main alternatives would be bio-fuels, such as ethanol and butanol, and electricity in the form of plug-in hybrid vehicles.

In the meantime, investment banker Matthew Simmons, having made a name for him in projecting the imminent end of oil era, is back in trade suggesting Saudi Aramco may not hit its oil production goals. “I’m dubious they can hit their targets,’’ Simmons told a Houston conference sponsored by the Association for the Study of Peak Oil & Gas, a non-profit think tank.

Simmons is the author of 2005’s ‘Twilight in the Desert: The coming Saudi oil shock and the world economy’, which argues that global oil production has already peaked and Middle East reserves estimates are overstated.

The current Simmons’ diatribe is despite the fact that Aramco is boosting spending on projects to raise its capacity from 11.3 million barrels to 12.5million bpd by 2009. Other major stakeholders, however, postured on the issue in a different perspective. James A. Slutz, the US deputy assistant secretary for oil and natural gas underlines there is no long-term global oil shortage. Clarifying the US official position, he told the audience in Australia that that any worries about oil supply were caused more by slow technological intake by oil explorers than by any specific oil shortage - or as the industry puts it - a low rate of change in the approach to non-conventional oil.

Interestingly, the debate about reliance on the Middle East or the dwindling supplies gets fierce when the stakes are high —as is the case now. However, as soon as the gloom dissipates — so does the debate. With the oil business cyclical in nature, no one is writing that off — though this may sound far fetched at this moment.