Oil Prices Close to Record 100 Dollar Mark

Oil Prices Close to Record 100 Dollar Mark
Middle East Online

Oil prices breached 99 dollars a barrel Monday to stand close to an unprecedented century as traders fretted over tight crude supplies globally, dealers said.

New York's main contract, light sweet crude for January delivery, struck as high as 99.11 dollars, not far off its record high of 99.29.

At about 1130 GMT, the contract stood at 99 dollars a barrel, up 82 cents from Friday's close.

London's Brent North Sea crude for January delivery hit an historic peak of 96.55 dollars on Monday. At about 1130 GMT, it stood at 96.46 dollars a barrel, up 70 cents.

"The market is fundamentally tight and one of the factors at present supporting prices is the tight market," said David Moore, a commodity strategist with the Commonwealth Bank of Australia.

A decision on whether the Organization of Petroleum Exporting Countries raises output when OPEC meets on December 5 will be closely watched by the market, said Moore.

"That will be very important no matter what the decision is," he said. "The decision is an important one for the oil market in terms of the perceived balance between demand and supply."

OPEC member Iran believes there is enough oil in the global market but is capable of pumping more crude should figures warrant and if there is agreement by the cartel to do so, its new oil minister said on Saturday.

"We believe there is enough oil in the market but if statistics and data show there is a need to produce more we are capable of meeting the demand," Gholam Hossein Nozari told a news conference in Tehran.

When asked whether Iran agreed with a possible decision to increase OPEC output, he said "we are studying it and will give our opinion."

But he added that any hike "should be in final agreement with other members" of the 13-member cartel, whose oil ministers meet in Abu Dhabi next month.

OPEC last decided to raise output in September when it agreed to provide an extra 500,000 barrels of crude a day to the market, which was made effective from November 1.

Despite pressures from developed countries, no decision on oil production was made at a rare OPEC summit last week.

Although some OPEC ministers expressed concern that expensive crude would eventually dampen demand for oil, they indicated that blame for the near triple-figure price lay outside the cartel.

On Monday, dealers also blamed high prices on US government data showing that energy stockpiles had fallen more heavily than expected.

Earlier this month, US reserves of distillates -- including crucial heating fuel and diesel -- had also fallen more than forecast.

Heating fuel demand is expected to pick up as the northern hemisphere winter kicks in next month. The US northeast region is the world's biggest user of heating oil.

The price of oil has surged by about 64 percent since the start of 2007, also supported by supply disruptions in key producers such as Nigeria, strong demand from China and India, and jitters over the Iranian nuclear crisis.

$100 oil: the Terrible Truth
By David Strahan
Comment is Free

As the price of crude oil sets records almost daily, the British government remains stunningly complacent. With the $100 barrel a real and constant threat, the prime minister's website blithely proclaims "the world's oil and gas resources are sufficient to sustain economic growth for the foreseeable future". Officials refuse to define what is meant by "foreseeable", but it is clear they suffer from extreme myopia, or worse.

All the evidence suggests we are rapidly approaching "peak oil", the point when global production goes into terminal decline for geological reasons. The industry consensus is that world output, excluding that from the Opec producers, will peak in about 2010. It is also widely agreed that Opec has grossly exaggerated the size of its reserves, meaning that global output must also peak soon. Since oil provides 95% of all transport energy, as well as vital inputs to modern agriculture, this is likely to provoke a crisis.

Oil executives have traditionally avoided talk of geological constraints - no doubt mindful of the value of their share options - but now even they admit the industry is in difficulty. A growing number believe output will never exceed 100m barrels per day, compared with 86m today. At present rates of growth, demand will hit that ceiling within about a decade.

The UK position relies on the International Energy Agency, which forecasts oil production rising to 116m barrels per day in 2030. But the model that produces this forecast relies in turn on an estimate of the total oil available published by the US Geological Survey, which is demonstrably wildly overoptimistic.

For the US survey numbers to come true, the world would have to discover 22bn barrels of oil a year between 1995 and 2025. So far we have discovered just 9bn per year, only 40% of the predicted amount. Since oil discovery has been falling steadily since 1965, this deficit is only likely to widen. Even if we assume annual discoveries stick at the current level for the next 20 years, the survey resource estimate is still 500bn barrels too high: the survey numbers imply an oil production peak in 2017-21.

The US survey estimate has long been criticised as inflated, but now even the optimistic IEA is having doubts. The agency is to reappraise its reliance on the survey figures for its long-term production forecast next year. It is difficult to see how it can do this without a huge downward revision of its forecast. Britain's official position is therefore built not only on sand, but the sand of an hourglass that is fast running out.

In fact, peak oil may have arrived already. Production of crude is lower now than in February 2005, while total liquid fuel production, including marginal sources such as biofuels, is lower than in July 2006. Even if it's not peak oil as such, production is struggling. Meanwhile demand continues to surge; the soaring price sends a clear message.

Tony Blair wrote in last year's energy review that it was a principal duty of government to secure energy supply. He was right. Gordon Brown must now abandon the reliance on IEA forecasts, institute a truly independent assessment of global oil depletion and launch a massive programme of mitigation. Anything less would be dereliction.

But of course he won't. Even more than climate change, peak oil demands that governments confront voters with uncomfortable truths that will affect living standards. In Whitehall, legs will remain crossed and buttocks clenched as politicians and officials pray to God that it doesn't happen in their term of office, or before they draw their inflation-linked pension.

David Strahan is the author of The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man www.lastoilshock.com

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