Prices and supplies – May 7

May 7, 2008

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Some See Oil At $150 a Barrel This Year

Neil King Jr. and Spencer Swartz, Wall Street Journal
A growing number of oil-market watchers say voters riled by soaring fuel costs may face far worse this summer, as factors ranging from unrest in Nigeria to slumping production in Russia could shove benchmark oil prices over $150 a barrel.

… Oil’s seemingly unstoppable surge has led some analysts to issue gloomier price outlooks. Goldman Sachs Group Inc., which predicted the latest run-up, says the world may face a “super-spike” in which crude ranges from $150 to $200 a barrel as early as October, up from just over $120 now.

“That would put oil at unprecedented price levels, even going back to just after the Civil War,” said Stephen Brown, an energy economist at the Dallas Federal Reserve Bank.

… Even more unusual is that oil has maintained its upward momentum in the face of sharply diminished U.S. demand, which fell in February to 19.7 million barrels a day. That was down a million barrels a day from the 2007 average.

… “It’s not that the genie is out of the bottle — it’s that 100 genies are out of the bottle,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. Normally known for optimistic forecasts of lowering oil prices, Mr. Yergin’s firm now says the price could rise to $150 a barrel this year.

The world’s diminished spare production capacity remains the strongest single catalyst for high prices, Mr. Yergin says. The world’s safety cushion — the amount of readily available oil that could be pumped in a moment of crisis — is now around two million barrels a day, according to most estimates. That’s just 2.3% of daily demand, and nearly all of the safety cushion is in one country, Saudi Arabia. Everyone else is pretty much pumping all they can, which makes the world vulnerable to political or other shocks.
(7 May 2008)
Kevin Drum at Washington Monthly comments:

Saying Daniel Yergin is an optimist is like saying Chris Matthews is annoying. Yergin basically thinks peak oil is Luddite crankery and that new technology will allow us to continue increasing production for at least the next several decades. He’s the Pollyanna of the oil patch.

Now, I’m sure he’d say that his current pessimism is based not on a fundamental reevaluation of recoverable reserves, but instead on “aboveground” issues: political instability, terrorism, lack of investment, and so forth. Still, if even Daniel Yergin thinks oil prices are headed upward, it’s a pretty good guess that oil prices are headed upward.

Goldman’s Murti Says Oil `Likely’ to Reach $150-$200

Nesa Subrahmaniyan, Bloomberg
Crude oil may rise to between $150 and $200 a barrel within two years as growth in supply fails to keep pace with increased demand from developing nations, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.

New York-based Murti first wrote of a “super spike” in March 2005, when he said oil prices could range between $50 and $105 a barrel through 2009. The price of crude traded in New York averaged $56.71 in 2005, $66.23 in 2006 and $72.36 in 2007. Oil rose to an intraday record of $122.49 today on speculation demand will rise during the peak U.S. summer driving season.
(6 May 2008)
At Reuters: “Super-spike” could lift oil to $200: Goldman.

Gas Prices Expected to Peak in June

Jad Mouawad, New York Times
Oil jumped to another record on Tuesday, and the government said it expected gasoline prices to peak at a national average of $3.73 a gallon in June, just as the summer driving season kicks off.

… Despite these higher costs, global oil demand is still projected to rise by 1.2 million barrels a day this year, mostly because of growing consumption in China, the Middle East, Russia, Brazil and India.

China alone will account for a third of the jump in consumption. In March, Chinese imports rose by 800,000 barrels a day, compared with levels a year earlier, a big increase that could mean China is filling its oil reserve needs before the start of the Olympic Games this summer.

… As demand continues to outpace the growth in oil supplies, analysts expect little relief in prices. A shortfall in supplies over the next two years will probably send oil to $150 to $200 a barrel, Goldman Sachs said in a new report.

Analysts’ forecasts for the price of gasoline over the next few years run as high as $7 a gallon.
(7 May 2008)

A tricky balance: oil industry employees

Paul Stastny, Oilweek Magazine
The industry worked hard to attract and retain employees in the boom times. The last thing companies want to do now is cut them loose.

Lack of skilled workers, an aging demographic, labour shortages-for a few years when it looked like the boom would never end, labour was a dire source of hand wringing, even panic.

In hindsight now, a lot of people wouldn´t mind having those problems back instead of the challenges the industry faces today. But strangely enough, even though drilling activity is down and the industry has gone through a round of layoffs mostly in the spring of 2007, some parts of the oil patch service and supply sector are still struggling to find and retain the workers they need.

As drilling activity levels started ramping up half a decade ago and it became clear the oilsands would employ as many people as it could find, the industry, government, and various associations stepped up to the challenge.

… Peak oil and gas activity has taught employers a lesson, Knight says. Companies that in the past didn´t do long-term workforce planning are now doing it. They also have a better understanding of the workforce demographics and profiles of their workers and are starting to incorporate workforce planning into their overall business planning.
(May 2008)

Tags: Energy Infrastructure, Fossil Fuels, Industry, Oil