The world’s energy ministers and oil producers are trying to agree on ways to prevent oil price spikes in the immediate future – although at least one economist is predicting “triple-digit” oil later this year.
The elite group is today (Wednesday, March 31) concluding their three-day International Energy Forum meeting in Cancun, Mexico. According to papers published ahead of the event, participants considered “demand and supply uncertainties,” having to balance Opec’s claim of spare oil capacity “exceeding 6 million barrels per day” against the claims of neutral strategic advisors PFC Energy that oil will be “peaking between 2020-2025 around 95.0 mmb/d.”
The majority of oil consuming nations are siding with Opec, according to press reports, agreeing that producers and consumers should work together to avoid a repeat of 2008’s market volatility. According to the UK Financial Times:
The change in attitude marks a significant shift in political relations between Opec, other producers and the world’s biggest oil-consuming countries. Opec’s efforts to control the market once made it the enemy of the US and many European nations.
However, nothing from the meeting has yet indicated how this will be achieved, or at what price Opec should endeavour to maintain oil.
In the first place, the US is reportedly pushing for a free-market approach. Again from the Financial Times:
But there was at least one important dissenter this week. At least publicly, the US insisted at the discussions that markets needed to be left to determine the oil price.
Daniel Poneman, US deputy energy secretary, said: “The goal of the US is a clear and long-standing one and that is to let the laws of supply and demand set prices.”
Meanwhile, delegates are quoted by Reuters agreeing that oil at $70-80 per barrel “was good for both sides,” maintaining producers’ revenues and consumers’ economies. It continues:
But there was no sign of a clear consensus by OPEC members at what price they would ramp up production if prices broke above the band Saudi Arabian Oil Minister Ali al-Naimi this week called “most appropriate”.
“Prices above $85 for a sustained period of time could well be harmful. We have to be aware that the economic recovery is still fragile,” an OPEC delegate told Reuters on the sidelines of the forum, which is aimed at promoting dialog between oil consumers and producers.
Naimi did not respond to questions about whether $85 a barrel would mean a rise in output. Asked the same question, a person familiar with Saudi thinking said simply: “No.”
US crude is currently up to around $82 a barrel, with Reuters citing analysts suggesting “it could push even higher as demand from the United States and other industrialized nations rebounds as their economies recover.”
One such analyst is economist Jeff Rubin, writing in today’s Canadian Globe and Mail newspaper. He has long predicted rising oil prices.
In his column, Expect a new peak for oil next year, he wonders how come, all of a sudden, analysts are no longer deeply concerned about $80-per-barrel oil. He asks:
But how much longer can the world pretend that it won’t soon be facing another energy shock, one every bit as challenging as the one it faced two years ago?
Does anyone still believe the reassuring forecasts from discredited feel-good organizations like the International Energy Agency about new sources of cheap supply, like those that once flowed from places like Prudhoe Bay in Alaska or the North Sea? If so, where is that supply of new affordable oil coming from? Surely not from tar sands or from ultra-deep water fields six miles below the ocean’s floor.
He goes on to predict further price shocks in the immediate future:
By the fourth quarter of this year, oil prices will be back in triple-digit range, and by next year oil prices will rise to record highs, taking out the high-water mark of $147 per barrel set back before the recession began in 2008.
We’re barely out of the recession, and already we face prices that, just a few years ago, our government, our oil industry and our economists toldus we would never see.
The issue, then is at what point will Opec increase oil output to keep prices down – or even, is this possible?