Oil 'will hit $100 by winter' Worst-ever crisis looms, says analyst

The Observer (UK) ^ | July 3, 2005 | Heather Stewart, economics correspondent

[aculeus]

Oil prices could rocket to $100 within six months, plunging the world into an unprecedented fuel crisis, controversial Texan oil analyst Matt Simmons has warned. After crude surged through $60 a barrel last week, nervous investors were pinning their hopes on a build-up in US oil-stocks to depress prices in the coming months.

But Simmons believes surging demand will keep prices bubbling well above $50. 'We could be at $100 by this winter. We have the biggest risk we have ever had of demand exceeding supply. We are now just about to face up to the biggest crisis we have ever had,' he said.

Opec producers held emergency talks last week to consider making their second 500,000 a barrel increase in production quotas in a fortnight: but the discussions were suspended last Thursday after prices dipped back below $60.

The looming oil crisis is not high up the agenda at this week's G8 meeting, although the heads of state are expected to repeat their finance ministers' call for greater transparency from Opec and other oil-producing nations about their reserves.

However, global warming is one of Britain's two major priorities, and Tony Blair hopes to secure a pledge to pour more cash into developing alternatives to the oil-intensive technologies that cause climate change.

Simmons believes such moves will be too little, too late. He will publish a hard-hitting book this week in which he argues that Saudi Arabia, the world's largest producer, is running out of oil, and further price rises are inevitable as supplies decline. He warns that the scramble for resources could eventually descend into war.

Many analysts expect extra production over the next year, as high prices boost investment by energy firms. But Simmons says after many years of underinvestment, there is even a shortage of drilling rigs.

'Many of these projects are aspirations; many of them won't create peak production in the first year, and many of them within five years will be in decline,' he said.

However, the Economist Intelligence Unit predicts that oil prices will peak by the end of this year, and decline by 10 per cent in 2006 as the Chinese economy slows, reducing demand. Chinese imports have been crucial to propping up the oil price in the last two years.

But the EIU warned that its forecasts - which show a 30 per cent increase in oil prices for 2005 - could prove too conservative if there are further wobbles in supply. 'The narrow margin of spare production capacity has made prices vulnerable to unforeseen reductions in supply or rises in demand,' it said.

Paul Horsnell, head of commodities analysis at Barclays Capital, said supply constraints would continue to bite for the rest of the year. 'It's all getting a bit tight'

Brent crude closed almost $2 a barrel higher in New York on Friday night, while futures contracts for heating oil, widely used in the US, hit a record high, which analysts said was unusual for summer.

'It's fear,' said Kyle Cooper, an analyst at Citigroup. 'It's not based on what is happening now. It's based on fear of what could happen.'

Guardian Unlimited © Guardian Newspapers Limited 2005

[Diana in Wisconsin]

'It's fear,' said Kyle Cooper, an analyst at Citigroup. 'It's not based on (any facts, whatsoever.) It's based on fear of what could happen.'

There. Fixed it! ;)

Gasoline is $2.25/gallon here this week. Still affordable, and no talk of local shortages. I just ran into town, and there were all sorts of boats, SUVs, camping vans, etc. filling up at the pump. Guess they didn't get this latest memo. ;)

[Diddle E. Squat]

Simmons believes such moves will be too little, too late. He will publish a hard-hitting book this week...

[Rodney King]

Simmons believes such moves will be too little, too late. He will publish a hard-hitting book this week in which he argues that Saudi Arabia, the world's largest producer, is running out of oil, and further price rises are inevitable as supplies decline. He warns that the scramble for resources could eventually descend into war.

Maybe, maybe not. The more likely scenario is that things will be rough for a little while, but the high prices will spur industry to come up with substitutes. At prices that are consistently over $60, coal liquification will likely be developed.

[HereInTheHeartland]

"Simmons believes such moves will be too little, too late. He will publish a hard-hitting book this week.."

I assume that he probably has a newsletter that he sell you also; for a modest fee of course.

Seriously, why do people always want to hear these "bad news/disaster just around the corner" types?

[Eagles Talon IV]

In the late 1980's and into the early 1990's there was an author whose name I can't remember except it was Indian (not American Indian) who came out with a couple of books hyping his method to preserve assets in "the looming world wide financial calamity" (paraphrase). This man is selling a book. Does anyone believe a book would sell if it's theme was that oil prices would drop to $25 bbl?

[Fresh Wind]

Cool! I'm going to mortgage my house and take my life savings and buy crude oil futures. I'm gonna be rich!!!!

[The South Texan]

WE'RE DOOOOOMMMMEDDDD!!!!!!

[alrea]

buy puts on home builders too

[kittymyrib]

The President could put a gas-rationing emergency executive order into effect overnight, just as cities all over the west and southwest ration water during a drought. The oil speculators would lose their shirts in the resulting crash, but that would serve them right. Sounds like this guy got the headlines he wanted right before his book comes out, and of course, the leftists in the media love to hype any pessimism they can find to hurt the country.

[umgud]

Question; Will the price of oil go up, or down?

Answer; Yes

[Mulder]

The oil speculators would lose their shirts in the resulting crash, but that would serve them right.

The high price of oil isn't being driven speculators. It's being driven by supply and demand. But I guess it's easier to blame a boogeyman than deal with the real problem of Peak Oil.

Demand for oil (and other commodities) will continue to increase as China and India continue their economic growth. Supply isn't keeping up, as seen by the recent doubling in the price of oil.

Production in the US peaked in the 70s. Production in the North Sea has also recently peaked. It's been 30 years since a new large oil field has been discovered. The large Saudi fields are starting to run out, and they are having to pump water into the fields to increase the pressure.

They are also lying about their oil reserves. They claim to have 260 billion barrels of reserves. This is the same amount they claimed 10 years ago. So while they are pumping out 10 million barrels a day, their oil reserves remain contstant! The last time an honest accounting of their reserves was done was back in the late 1970s. I think that number was around 100 billion barrels, which the Saudi government magically doubled in the 80s.

[Eric in the Ozarks]

I think you're on to something.

[oceanview]

all I know is that older family and friends on fixed incomes have been telling me that their oil contracts for the coming winter are showing home heating fuel at $2.39 a gallon - they are scared to death. the government is going to have to pony up some massive funds for HEAP this winter.

[oceanview]

all the president has to do is open the SPR - release physical oil onto the market at $42/bbl - break the speculators. then sign a contract with the new iraqi government to replace the oil being released from the SPR.

[oceanview]

and as soon as those new solutions come to market - oil will magically fall to $30 a bbl. industry isn't going to invest in new technology when they can't predict a stable price point for oil, since the market is manipulated.

[anonymous_user]

                     We're DOOMED!
                             \       /

[Royal Wulff]

No, actually he owns an investment bank that has handled over 60 billion dollars in transactions for the energy industry.

Here is a link to his company web site.

His views are not so easily dismissed in my opinion.

[Mulder]

all the president has to do is open the SPR

They should be increasing the size of the SPR.

break the speculators

This isn't a "speculator" problem, it's a supply and demand problem. Selling our reserves simply means that we'll be buying them back at a higher price next year. Sell low, buy high.

then sign a contract with the new iraqi government to replace the oil being released from the SPR.

Uh, weren't they promising to do this 3 years ago?

[_Jim]

The high price of oil isn't being driven speculators. It's being driven by supply and demand.

Really?

I guess these guys didn't get the memo then.

Excerpt:

Speculators hijack oil market

Prices have been forced up unnecessarily as investment banks and hedge funds join the 'black gold rush'. Robert Winnett reports

A LARGE WAREHOUSE in Amsterdam may seem an unusual place to attract the City?s top traders and hedge funds. But, in the past few months, Morgan Stanley has been accumulating warehouse space in the Netherlands to store its hottest new property - oil.

This and the tankers that have been hired by the investment bank illustrate just how important oil is now becoming in the City of London and Wall Street.

Morgan Stanley may be among the most advanced of the new breed of oil speculators, but, over the past year, many banks and hedge funds have joined the "black gold rush". With the stock market proving lacklustre, the oil market has been a godsend for the banks, which describe it as the "new Nasdaq".

Speculators have helped to drive oil prices to near record levels - peaking at almost $50 a barrel last month. Oil is the talk of the City with many millions of pounds being made every day, and oil traders are among the most sought-after employees.