RIYADH, Oct 20: Crude oil breached the $90 mark in New York for the first time, closing in dangerously on the inflation-adjusted peak of $101.70 per barrel hit in April 1980, a year after the Iranian revolution.
Tight supplies, weakening dollar, geopolitical worries, storms, cold weather projections and strong global economic growth - all seem to be adding to the woes of the market.
The London-based Centre for Global Energy Studies (CGES) blames the Opec too. It says the output increase from November, ‘is too little, too late’ to bring prices down this winter. It argues in its monthly oil report that the world has been kept short of oil this year, while stocks have fallen counter-seasonally in Q3, 07.
Considering that global oil production has barely increased over the past two years, while demand has risen by more than 1m bpd, the CGES feels without more oil from Opec prices will continue to rise over the winter.
Tension between Turkey and Kurdish rebels in northern Iraq is a cause of immediate concern. The Opec report that - non-Opec production is also down by 110,000 bpd and that the global consumption is registering growth - again did not help either.
The US Energy Information Administration (EIA) also estimates the global crude demand to grow by 1.8 million barrels a day higher in the fourth quarter than it was during the same period last year. The price surge followed the US government projection of a colder winter.
The US National Oceanic and Atmospheric Administration said winter temperatures in the US will be 1.3 per cent lower than last year, though underlining it would be 2.8 per cent warmer than average.
A Platts presentation also confirmed tightening supplies as investments in oil and gas sector were falling behind the requirements, making the demand-supply balance even tighter over the next few years. The $100 a barrel era hence seems an imminent possibility.
“The two arguments, the ability of technology to raise new supply and the ability of prices to limit demand, are falling quickly by the wayside,” says Jeffrey Rubin, an economist at CIBC World Markets.” Gone are big oil’s smug assurances that their technical prowess will untap huge hitherto undiscovered reserves of cheap crude. What we hear instead through the voice of the US National Petroleum Council are warnings of depletion and steadily rising prices, he said.
A CIBC report notes that China consumes more than double its daily production of 3.5 million barrels, while consumption at other fast-growing Asian nations — India, Malaysia and Thailand — is also going up fast.
In order to meet the escalating demand in China, Saudi Aramco has increased its oil exports to China by at least 9 per cent this year. Shipments to China may climb to more than 26 million tons of crude this year, Aramco officials said.
Oil traders also appear to have cast aside concerns that high prices will lead to a global recession. “It seems like the world is willing to pay more money for oil, it does not seem like it is slowing down growth. “So it is possible to hit 100 dollars next year,” Ben Tsocanos, an analyst at Standard’s & Poor said.
Some in Opec today seem inclined towards the $100 era. Qatar’s Energy Minister Abdullah bin Hamad Al-Attiyah in remarks earlier said “If we take into account inflation from 1972 to the present day, the real and fair price for oil should be more than $100,”
He said such a price was justified by rising inflation, a fall in purchasing power and the weakness of the dollar, which has dropped about 10 per cent in value against the euro over the past year. Some are saying that the rising prices are acting as a hedge against the falling dollar. The $100 barrel era may not be too far fetched now!