$100-a-barrel oil may be only a few months away
$100-a-barrel oil may be only a few months away
Copyright by Bloomberg News
Published: July 23, 2007
NEW YORK: The $100-a-barrel oil that Goldman Sachs Group said would prevail by 2009 may be only a few months away.
Jeffrey Currie, a London-based commodity analyst at the largest brokerage firm, said that $95 crude was quite likely this year unless OPEC unexpectedly increased production and that declining inventories were raising the chances for $100 oil.
Jeff Rubin at CIBC World Markets said $100 a barrel could come as soon as next year.
John Kilduff of the New York office of the futures trading firm Man Financial said: "We're only a headline of significance away from $100 oil. The unrelenting pressure of increased demand has left the market a coiled spring."
New disruptions of Nigerian or Iraqi supplies, Kilduff said, or any military strike against Iran might trigger the rise.
Higher prices will increase revenue for energy producers from Exxon Mobil to PetroChina, while eroding profit for airlines and railroads. The United States and other oil-importing nations risk higher inflation, while increased energy costs could restrain growth.
The benchmark crude oil future ended last week at $75.57 a barrel on the New York Mercantile Exchange, up 51 percent since mid-January and twice the level of early 2003.
A record number of options have been sold that give the buyer the right to buy crude oil at $100. The contracts, covering 50 million barrels, pay off only if oil were to go above the target price.
Arjun Murti, a Goldman Sachs analyst based in New York who covers oil producers and refiners, roiled markets in March 2005 with a report saying prices could touch $105 a barrel during a "superspike" period because demand was stronger than anticipated. Price swings might also go as low as $50, Murti said at the time.
Currie, Goldman's global head of commodities research in London, is predicting that oil prices will probably touch a record high and stay at unprecedented levels for months or years. The all-time high for the benchmark Nymex crude future is $78.40 a barrel on July 14, 2006.
"Ultimately, the key to the outlook going forward is when will Saudi Arabia ramp up production," he said in an interview. "If you have a situation in which inventories globally get drawn to critically low levels, the volatility in this market is likely to explode, which significantly increases the probability of $100 oil."
The failure of near-record fuel prices to restrain global oil demand growth is what concerns Rubin, chief strategist at the brokerage unit of Canadian Imperial Bank of Commerce in Toronto.
"Prices have doubled, and demand is alive and well and accelerating," he said in an interview last week. "The argument that rising prices would choke demand and bring increased output is falling to the wayside."
A National Petroleum Council study led by a former Exxon Mobil chairman, Lee Raymond, released last week, predicted a growing gap between production and demand for oil and natural gas during the next two decades.
"There are questions about whether the oil industry can keep up with demand," Energy Secretary Samuel Bodman said last week, commenting on the council's report.
Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington, said, "It appears that high prices are acceptable to the American consumer."
Outside the United States, demand growth is being led by India and China, where growing economies mean more cars and trucks and more factories that use oil and natural gas.
Consumption from now to the end of the year will increase by 3.6 million barrels a day because of seasonal shifts. The rise is equal to the daily production of Kuwait and Oman combined, and it comes after OPEC twice in the past year cut production to support prices.
The cost of finding and pumping oil is rising steadily, leading analysts like Rubin and Deutsche Bank's chief energy economist, Adam Sieminski, to say that higher prices will last. Shortages of deepwater drilling ships and rigs have pushed daily rents to records, and the skilled workers needed to run rigs, weld pipes, pilot vessels, fix refineries and build oil-sands projects command ever-higher wages.
"I've gotten tired of increasing these forecasts in $5 increments," Sieminski said in an interview. "Something has happened. Costs have continued to escalate, and the geopolitical situation has gotten worse."
Oil prices could triple in three months to more than $200 a barrel, given the right circumstances, according to Matthew Simmons, chairman of Simmons, a Houston investment bank.
"Oil is still cheap," Simmons said. "In the 20th century, with a few exceptions, oil was almost free. The only exceptions were during 1973, 1979 and when Iraq invaded Kuwait."
Copyright by Bloomberg News
Published: July 23, 2007
NEW YORK: The $100-a-barrel oil that Goldman Sachs Group said would prevail by 2009 may be only a few months away.
Jeffrey Currie, a London-based commodity analyst at the largest brokerage firm, said that $95 crude was quite likely this year unless OPEC unexpectedly increased production and that declining inventories were raising the chances for $100 oil.
Jeff Rubin at CIBC World Markets said $100 a barrel could come as soon as next year.
John Kilduff of the New York office of the futures trading firm Man Financial said: "We're only a headline of significance away from $100 oil. The unrelenting pressure of increased demand has left the market a coiled spring."
New disruptions of Nigerian or Iraqi supplies, Kilduff said, or any military strike against Iran might trigger the rise.
Higher prices will increase revenue for energy producers from Exxon Mobil to PetroChina, while eroding profit for airlines and railroads. The United States and other oil-importing nations risk higher inflation, while increased energy costs could restrain growth.
The benchmark crude oil future ended last week at $75.57 a barrel on the New York Mercantile Exchange, up 51 percent since mid-January and twice the level of early 2003.
A record number of options have been sold that give the buyer the right to buy crude oil at $100. The contracts, covering 50 million barrels, pay off only if oil were to go above the target price.
Arjun Murti, a Goldman Sachs analyst based in New York who covers oil producers and refiners, roiled markets in March 2005 with a report saying prices could touch $105 a barrel during a "superspike" period because demand was stronger than anticipated. Price swings might also go as low as $50, Murti said at the time.
Currie, Goldman's global head of commodities research in London, is predicting that oil prices will probably touch a record high and stay at unprecedented levels for months or years. The all-time high for the benchmark Nymex crude future is $78.40 a barrel on July 14, 2006.
"Ultimately, the key to the outlook going forward is when will Saudi Arabia ramp up production," he said in an interview. "If you have a situation in which inventories globally get drawn to critically low levels, the volatility in this market is likely to explode, which significantly increases the probability of $100 oil."
The failure of near-record fuel prices to restrain global oil demand growth is what concerns Rubin, chief strategist at the brokerage unit of Canadian Imperial Bank of Commerce in Toronto.
"Prices have doubled, and demand is alive and well and accelerating," he said in an interview last week. "The argument that rising prices would choke demand and bring increased output is falling to the wayside."
A National Petroleum Council study led by a former Exxon Mobil chairman, Lee Raymond, released last week, predicted a growing gap between production and demand for oil and natural gas during the next two decades.
"There are questions about whether the oil industry can keep up with demand," Energy Secretary Samuel Bodman said last week, commenting on the council's report.
Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington, said, "It appears that high prices are acceptable to the American consumer."
Outside the United States, demand growth is being led by India and China, where growing economies mean more cars and trucks and more factories that use oil and natural gas.
Consumption from now to the end of the year will increase by 3.6 million barrels a day because of seasonal shifts. The rise is equal to the daily production of Kuwait and Oman combined, and it comes after OPEC twice in the past year cut production to support prices.
The cost of finding and pumping oil is rising steadily, leading analysts like Rubin and Deutsche Bank's chief energy economist, Adam Sieminski, to say that higher prices will last. Shortages of deepwater drilling ships and rigs have pushed daily rents to records, and the skilled workers needed to run rigs, weld pipes, pilot vessels, fix refineries and build oil-sands projects command ever-higher wages.
"I've gotten tired of increasing these forecasts in $5 increments," Sieminski said in an interview. "Something has happened. Costs have continued to escalate, and the geopolitical situation has gotten worse."
Oil prices could triple in three months to more than $200 a barrel, given the right circumstances, according to Matthew Simmons, chairman of Simmons, a Houston investment bank.
"Oil is still cheap," Simmons said. "In the 20th century, with a few exceptions, oil was almost free. The only exceptions were during 1973, 1979 and when Iraq invaded Kuwait."
posted by Carlos T Mock at 7:04 AM
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