Beyond Comprehension

If you don't understand what is going on with the price of gasoline and demand for the world's oil supply, then join the club.

Analysts, pundits, government officials, oil ministers, oil executives, and oil traders are all over the board in trying to explain what is happening and more importantly what is going to happen. Some are saying that $30 oil will be with us until the economy recovers while others are talking of a spike to $200 in 2009.

We are currently finishing out an extraordinary year. For several years now, oil prices have been moving steadily higher. They passed $100 a barrel around New Year's and moved on to peak at around $147 in July. By late spring much of the world was in turmoil. Politicians were out in force, bashing speculators, environmentalists, OPEC, additions to the Strategic Petroleum Reserve and you name it. Airlines and car sales were collapsing. The President flew off to Saudi Arabia where he personally appealed to the King to send us more oil. The King held a big oil conference and promised to do what he could.

Then, in mid-July, the great oil panic came to a screeching halt. While several explanations have been offered for this turnabout, I believe the start of the Beijing Olympics the most proximate cause. If 2008 has been hard on America it has been traumatic for China. In the first half of the year the Chinese endured a great earthquake, major snowstorms, and a nationwide panic over readiness to put on the Olympics. All this, of course, was accompanied by some of the worst air quality on earth.

For six months China was in an oil-buying frenzy trying to compensate for lost production during the quakes and storms, and ensuring that there would be no fuel shortages during the Olympics. To clean up the air, Beijing banned half the cars and trucks in and around the capital from operating and shut down every industrial enterprise that contributed to air pollution for hundreds of miles around the Olympic sites. The plan worked, but China's oil imports plummeted and the greatest oil price plunge in history began.

The great plunge was aided by the $4 to $10 gallon cost of gasoline and diesel in the U.S. and Europe which some believe was a primary cause for the world economy tanking in the second half of the year. To the surprise of nearly all observers, once oil prices began falling; they fell, and fell, and then fell some more. From $147 a barrel, prices dropped until they briefly touched $32 last week and are currently sitting around $40. To the delight of motorists, gasoline prices in the US went from $4 - $5 a gallon in July to $1 - $2 in December. Although it went unnoticed, America's economy received a massive stimulus from the billions of dollars that were left in consumers' pockets after each fill-up.

Now we get to the key question of why oil has fallen so low and the corollary of what happens next -- $20 or $200 oil. For the why-so-low question there can only be two answers: either demand has dropped well below readily available supplies or market factors such as speculation, trader pessimism, or the unwinding of hedge funds has caused oil to drop so rapidly.

Despite the lack of good information, it is clear that worldwide demand for oil has fallen in the last six months. U.S. demand is down about 1.2 million barrels a day(b/d). OECD commercial petroleum inventories, including those of the US have increased steadily as importers have taken advantage of lower prices. We know that Japanese imports are down around 500,000 b/d over last year and that Chinese imports have dropped a little. What is missing for now is a good feel for the actual size of the worldwide drop in demand. At one end of the scale is the IEA who recently opined that for 2008 worldwide demand will only be down by 200,000 b/d. Some, however, are saying demand is already 6 or 7 million b/d lower than the peak of around 86 million b/d reached last summer. This will take some time to sort out.

What is important, however, is that oil traders and the financial press continue to repeat over and over again that oil prices are dropping because of the contracting world economy. This has become the mantra of the market. There is also a substantial body of opinion that some component of the fall in oil prices is due to the unwinding of hedge funds and the general deleveraging of nearly all financial institutions.

While U.S. demand for oil products currently is down about 6 percent, this number has been stable for several months. Oil is so deeply ingrained in the fabric of most countries, particularly that of the U.S., that deeper cuts in consumption are unlikely unless the economy really sours.

OPEC production cuts are now approaching 2 million b/d and are scheduled to reach 4 million b/d in the next couple of months. Whether this will be enough to cover the drop in demand is the question of the day. Most commentators are fearlessly predicting a rapid rise in oil prices as soon as economic recovery sets in -- either in a few months or a couple of years. The more interesting issue is what happens if there is no recovery in the next few years or the next few decades. Do oil prices bounce merrily along at rock bottom levels until geological and investment constraints start to massively limit supplies? OPEC is already talking of yet another cut as the last three have had no measurable effect. Will OPEC overcut and cause another price spike within the next year despite the state of the economy?

There is clearly an irreducible minimum amount of oil consumption out there below which our oil-based economies will begin to deteriorate rapidly. If there is anything that is certain as a result of the present low oil prices, it is that investment in new oil production is dropping so rapidly that there will be serious problems three to five years from now.


Published Dec 24 2008 by Falls Church News-Press Archived Dec 25 2008
by Tom Whipple

The peak oil crisis: July 2008 – a month to remember by Tom Whipple

There is a growing consensus among those who follow such things, that the new high of world oil production (87.9 million barrels a day) reached last July is likely to go down in history as the all-time peak.

This is by no means a unanimous opinion.

The official government forecasting agencies, the IEA and the EIA, have devised rather bizarre scenarios that would allow oil production to ease higher for another 20 years or so. These organizations, or course, are not free agents both being bound by political strictures rather than a search for truth. While the world's governments are inching closer to public acknowledgement of peak oil, they have many diverse responsibilities such as maintaining the domestic tranquility, fighting various kinds of wars, and providing some semblance of financial stability. Clearly a sudden admission that world oil production had just entered an irreversible decline would not help with these other responsibilities. Optimists and those unwilling to contemplate the ramifications of rapid change are still maintaining that oil production will grow in some mysterious manner for the foreseeable future.

Most students of the subject at first thought that world oil production was going to peak for geological reasons --- the inability to find and produce enough oil to keep our annual consumption of 30 billion barrels increasing. In recent years, "above ground" factors such as wars, nationalistic governments, and failure to invest have become the popular reasons for constraints on increasing world oil production among those who for one reason or another do not like the geologic (running out of reserves) argument.

While all these factors are contributing to the likelihood that from here on out less and less oil will be produced, it seems that the initial decline in production will come because the world economic situation has deteriorated so much that we simply don't need 87.9 million barrels a day (b/d) of oil anymore.

At the minute, OPEC is scrambling to figure out how to enforce an equitable production cut to drive prices higher again. Current talk is that it will take cuts totaling 3 million b/d or more to balance supply and demand. If reductions on this order actually take place in the near future, then world production which has been declining since July will have started on a downward slope from which it is unlikely to ever recover.

New oil production and refining projects are being cut back right and left due to low prices, lack of demand, and the inability to borrow money. It will take several years for these cutbacks in investment to affect oil production; in the meantime, depletion will take over and cause irreversible declines in oil production in the next five to ten years.

In the three-way struggle among worldwide oil depletion, new oil production projects, and the global recession, we have a pretty good handle on depletion and new projects, but appreciation of the depth and length of the recession is not well understood. What was widely believed last year to be a couple of weak quarters is now generally acknowledged to be the worst economic slump since World War II. Optimists, especially on Wall Street and in Detroit, are saying that by 2010, or 2011, or 2012, the recession should be over and economic growth will return. There is great faith that the world's governments can manage a recovery by lowering interest rates, pumping trillions of government money into the financial system, loaning money to failing corporations, and instituting massive stimulus packages. Some are not so sure.

Whatever the root causes of our new recession - bad lending practices, leverage, too much debt, lax regulations, or as some believe, high oil prices - it is clear that it is going to be worldwide, serious and will take some time, perhaps years, to work itself out. The last recession of this scope went on for ten years and picked up the name of "the great depression" somewhere along the way.

The role of oil in the nature and duration of the recovery from all this will be critical. Should OPEC succeed in driving oil prices back up to $75 or $100 a barrel by imposing serious restrictions on production, then, as we saw last summer, money will be drained from the recovery into oil producers' coffers, but there will be more incentive to invest in new production. Gasoline prices, however, will climb again and consumers will be back where they were last spring.

If the recession deepens over the next year or so, the demand for oil is likely to decline significantly. OPEC may have trouble getting prices back up to "satisfactory" levels. At present, worldwide demand for oil, while slipping, is not yet dropping precipitously. If such a drop should happen, then it is a solid indication of deep and lasting economic troubles for some time to come. Declines in worldwide production over the next few years initially will come from production cutbacks due to lack of demand. If the economic situation gets really bad, these demand-induced cutbacks could continue longer - perhaps for many years. At some point, however, worldwide oil depletion will catch up with new production as expensive investment in new oil fields is likely to shrink under conditions of declining demand.

At this point, the oil age will be closing down. Worldwide production will be declining rapidly through a combination of lower demand and then depletion. In four years sustainable production capacity is likely to be down from 87 million b/d to the vicinity of 80 million. In 10 or 15 years world production is likely to be in the vicinity of 50 million b/d and by mid-century 20 or 30 million. By the end of the century, oil production will be nearly gone and will be restricted to high-value uses for which there is no alternative. Future generations will either adopt alternative forms of energy, far more efficient machines, or do without. And it all started last July.

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Original article available here
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Given the news from the past few months, it borders on the foolhardy to preach about the looming dangers of peak oil. Doing so seems a bit like warning about the possibility of drought while standing without an umbrella in the midst of a torrential downpour.

Indeed, the price of oil has plummeted from its July peak of $145 per barrel (for West Texas Intermediate at Cushing, Oklahoma) to under $80 by early October. The price collapse coincides with a big drop in oil demand. The Energy Information Administration now expects that U.S. consumption will fall by 4 percent this year. And credit-card issuer MasterCard estimates that gasoline demand during the first week in October fell by 9.5 percent compared to the year-earlier period. Indeed, it appears that the demand destruction associated with the rapid run-up in oil prices has for the moment obliterated all talk of oil going to $200 in the next year or two, or three. Over the longer term, the key question appears obvious: will demand destruction take the “peak” out of peak oil? (I’ll come back to that in a moment.)

The prospect of $50 oil looms. OPEC is in disarray. The Saudis have made it clear that they will defend the price that suits them, not the prices that Hugo Chávez wants. After all, they are spending tens of billions of dollars to bring on new spare capacity while the Venezuelans have essentially decided to sit on their hands and plunder PDVSA for as much cash as they can. Further, according to the latest projections from the International Energy Agency, Saudi Arabia will add 1.78 million barrels per day of new capacity by 2013. The Saudis are eager to get a return on their multi-billion dollar investments in the fields at Shaybah, Nuayyim, and Khurais.

All of these factors have led to a stock price collapse for essentially all oil and natural gas companies. Between mid-September and early October, shares in Chesapeake Energy, one of the biggest U.S. independents, fell to less than $17, from $40. During that same time, Exxon Mobil fell to just over $62, from $75.

And yet – and yet – some of the best minds in the energy business insist that this latest bear market is only baiting the trap for a huge price run-up that will likely come around 2015. And – despite all of the current turmoil – they may end up being right.

Before going further, I readily admit that I have, for several years, had a rather flippant attitude toward peak oil. When asked my opinion, I would generally respond: so what? My rationale being, we will only know that we’ve hit peak oil when the event has actually passed. And second, regardless of prices or supplies, we will only move away from oil when something else comes along that is cheaper/cleaner/more convenient, or all of the above. Thus, I’ve long felt that all the fretting about peak oil has been largely misplaced and that even if the peak were imminent, there would be little that the U.S. or any other country could do to avoid the difficult energy transitions that are looming.

That said, I’ve spent a good bit of time over the past couple of months talking to two of the sharpest analysts in the oil business: Peter Wells and Charley Maxwell. And both are convinced that peak oil is real, it’s coming, and the pain that will accompany its arrival will be severe.

Who are these guys? Wells has a Ph.D. in geology and three decades of experience in the global oil industry. He has worked extensively in the Middle East, Russia, West Africa, and Europe, and is an expert on the oil politics and geology of Iran and Iraq. He spent 12 years with Shell International, 4 with BP, and 6 with LASMO, the British oil and gas independent, where he led the company’s business development efforts in the Mideast, including Iran. In 2001, he helped start Neftex, a British oil consulting firm. Since 2005, he has been a consultant to Toyota, developing world oil supply and price forecasting models. I have known Wells since 2005 and heard him speak several times. His presentation on September 23 during a “sustainable mobility” seminar sponsored by Toyota in Portland, Oregon motivated me to write this piece.

Maxwell has been in the oil business for more than 50 years, beginning with a stint at Mobil Oil in 1957. In 1968 he began working as an energy securities analyst. Since 1999, he has been a senior energy analyst at Weeden & Co., a brokerage in Greenwich, Connecticut. Now 76 and showing no signs of slowing down, Maxwell has become one of the most quoted analysts in the business. In the September 8 issue of Barron’s, Maxwell predicted that due to ongoing demand growth, and lackluster supply additions that include the new Saudi fields at Khurais, Shaybah, and Nuayyim, the price of oil will reach about $300 per barrel by 2015. I have heard Maxwell speak several times since 2002, and talked to him at length on September 25, when he summarized his view of the future by saying, “We have gone on an unsustainable energy course.”

Of course, there is a multitude of other analysts who’ve been studying peak oil and making dire predictions, including Colin Campbell and Kenneth Deffeyes.

What sets Wells apart from the pack of alarmists is that he has done the deep and dirty analysis of individual field production data. In fact, Wells utilized field output info supplied by Denver-based consulting firm I.H.S., which owns one of the world’s most extensive oilfield databases. This same field-by-field data was utilized in 2006 by an I.H.S. subsidiary, Cambridge Energy Research Associates (CERA), to come up with their study on future global oil production, which claimed that global output could reach an “undulating plateau” of 130 million barrels per day by 2030. The study concluded that the peak oil argument “is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future.” The study also claimed that the remaining global oil resource base is about 3.74 trillion barrels.

Wells took the same data and came up with a far different conclusion. He estimates that global liquids output will peak in about 2015 at no more than 100 million barrels per day. And that’s when things will get very interesting for automakers like Toyota and, of course, for the rest of us.

Wells’s work on peak oil began in 2003, which led him to publish a piece in the Oil and Gas Journal in 2004. Looking back at that initial work, Wells says that his prediction at the time was that the peak in global liquids output would likely come at a level of about 95 to 110 million barrels per day, somewhere between 2020 and 2035, “depending on OPEC reserves and OPEC’s willingness/ability to invest in new capacity.” When he began his consulting work for Toyota in 2005, Wells decided on a “bottom up” approach using the I.H.S. database and Neftex’s own data for the U.S. He then disaggregated all of the potential sources of oil – conventional crude, NGLs, tar sands, shale oil, biofuels, coal-to-liquids, etc. – so that he could look at their growth potential on a segment-by-segment basis. The I.H.S. data included field-by-field information as well as production information for the former Soviet Union, the U.S., all of the OPEC members, and all non-OPEC producers.

Among his most important conclusions is that non-OPEC production is peaking this year. That is in line with analyses done by the E.I.A. and by John S. Herold Inc., on the non-OPEC producers and the major international oil companies.

During his presentation in Portland, Wells said that the world is near the halfway point with regard to oil reserves. That is, we have produced about 1 trillion barrels of oil and there’s about 1 trillion barrels left to produce. But the problem is that new discoveries are not keeping pace with demand. “World peak exploration success was hit in 1960,” said Wells. Today, as countries like China, India and others grow their economies, demand is outstripping the oil industry’s ability to find new reserves to feed that demand. And that can be seen by looking at spare capacity. In the mid-1980s, the world had a peak in spare capacity, with some 10 million barrels per day of excess production capability. Predictably, that spare capacity led to a price collapse that persisted until the first years of this century, a period during which, according to Wells, the floor price of oil was largely set by the spending needs of the Saudi government. Today, and for the foreseeable future, supply and demand will be in much tighter alignment, with Wells seeing excess capacity growing slightly this year and next to about 2 MMbbl/d.

The tight spare capacity exacerbates several other factors. The peak in non-OPEC production means that future production must come from OPEC members. That’s a problem. Saudi Arabia stands alone as the player with the resources, technical skill, and desire to increase production in a meaningful way in the near term. The other major OPEC members with big resources – Iran, Iraq, Venezuela, Kuwait, and Nigeria – all face political constraints that will limit their ability to add large increments of new production.

Of course, if those political constraints were removed, the issue of peak oil would probably be forgotten for another 20 years or so. Wells believes that Iraq could eventually produce 7 MMbbl/d, but that level won’t be reached until at least 2020, due to the obvious obstacles: political wrangling, violence, and the lack of technically savvy personnel who can manage large new exploration and production projects. Iran, Venezuela, and Nigeria could likewise ramp up production, but all are beset by political regimes that have little interest (or ability) to dramatically increase output for the export market. Wells predicts that Iran may be able to increase its output to about 5.5 MMbbl/d, but not much beyond that.

There are other impediments that go beyond the OPEC/non-OPEC divide. And readers of ET will find them familiar: lack of manpower, increasing prices of steel, and increasing costs for fabrication, purchase, and maintenance of all types of oilfield machinery and installations. Of course, none of these factors will matter if oil demand continues to fall. That doesn’t appear to be likely.

Destruction Demand

History shows that sharp increases in oil prices are often followed by recessions. Those recessions typically lead to sharp decreases in oil demand and therefore, prices. The most obvious example of that slackening demand occurred after the sharp price increases of the late ’70s and early ’80s. Those prices reached about $98 per barrel (in 2008 inflation-adjusted dollars) in January 1981. In 1978, U.S. oil consumption averaged 18.8 MMbbl/d. It stayed below that level until 1998, when it hit 18.9 MMbbl/d. That period of slack demand was accompanied by a sustained period of low prices. From the mid-’80s through the early ’00s, prices largely stayed under $20 and even fell as low as $9.39 per barrel ($12.57 in 2008 dollars) in December 1998.

Today, we have similar slackening of demand due to higher prices. For instance, in July 2008, consumption was 19.4 MMbbl/d, substantially below the all-time high of 21.6 MMbbl/d in August 2005. Furthermore, U.S. oil demand has been falling nearly every month since December 2007.

So will demand destruction take the peak out of peak oil? While it’s tempting to answer in the affirmative, several factors appear to show that it will not. Before going to those factors, let’s look at the forces that could lead to slower demand growth. They include, most obviously, a sustained recession. If world economic growth stalls for a sustained time, oil demand will continue to be slack. Second, automakers are working hard on hybrid vehicles and electric cars that could slow gasoline demand. Third, new tougher efficiency standards for U.S. automakers, combined with ongoing additions of billions of gallons of corn ethanol into the gasoline pool, will likely further dampen U.S. gasoline demand. (Note, however, that decreasing gasoline demand will not necessarily mean lower overall oil consumption, as refiners will still have to refine crude in order to produce diesel, jet fuel, and other products.)

Even so, there are major differences between the current situation and the conditions that existed in the ’80s and ’90s. First and foremost is the paucity of spare production capacity to be had. Further, there are far fewer oil producers with big reserves remaining to be tapped. As shown in Table 2, 10 different oil-producing nations peaked between 1996 and 2004. Those producers will not be able to add significant amounts of new crude production to the global market.

Perhaps most crucially, in decades past China and India were largely still on the sidelines. That’s no longer the case. According to an October 7 report from the E.I.A., China’s August crude oil imports jumped by 12 percent, while its oil products imports increased by 32 percent, over the year-earlier period.

Of course, it’s not just China. Other developing countries, like India, Vietnam, Malaysia, and Indonesia, are also rapidly increasing their energy consumption. And much of that is focused on transportation. In July, the I.E.A. estimated that the total number of motor vehicles could increase to as many as 1.2 billion by 2013, from the current 800 million. While a very small percentage will run on electricity, natural gas, or other alternatives, the overwhelming majority will be fueled by refined petroleum products.

Additionally, any future increases in OPEC output, particularly among the Persian Gulf members of the cartel, could be directed toward internal use. Energy demand in the Persian Gulf is soaring. According to the latest BP Statistical Review, in 2007, oil consumption in the Middle East grew at the same rate – 4.3 percent – as did demand in China. That increasing oil demand is a reflection, in part, of the region’s growing electricity demand. In 2007, power generation jumped by 4.7 percent in the Middle East. For comparison, power use in North America grew by 2.4 percent. And as the Middle East continues to industrialize, it’s reasonable to assume that its energy demand will continue rising apace.

In 2006, Dermot Gately, an economist at New York University, analyzed the energy consumption patterns within OPEC. Last year in The Energy Journal, Gately concluded that growing demand within OPEC members could mean that 40 percent to 50 percent of the cartel’s total output could be consumed internally by 2030, thereby “constraining OPEC’s ability to increase oil exports.” Gately wrote the rest of the world “should not rely upon OPEC’s export-share of non-OPEC demand remaining constant. We might not even be able to count upon OPEC being able to maintain its level of oil exports.”

Data from Saudi Arabia, the world’s biggest oil producer, backs up Gately’s thinking. According to the E.I.A., Saudi oil production increased by 8.9 percent between 1997 and 2007, growing to 10.2 MMbbl/d from 9.4 MMbbl/d. But during that same time, internal consumption jumped by 67.3 percent, to 2.31 MMbbl/d from 1.38 MMbbl/d. The result: net Saudi oil exports during that decade fell, albeit slightly, about 80,000 bbl/d.

So what does all this mean?

Perhaps the best single point was made by Maxwell, who said that peak oil will not be as damaging to the U.S. and other developed countries as it will to the less-developed world. Why? Because higher oil prices will mean “rationing by price.” That is, the wealthier countries and consumers will be more able to afford motor fuel that costs $5, $10, or even $15 per gallon. Consumers in poor countries will be unable to compete for fuel at those prices. And that could create serious social problems. Wells largely agrees with this outlook, saying, “Rising prices will drive demand destruction and the development of new technologies to make much better use of supply.” He goes on, explaining in a recent e-mail, “This will be painful and potentially fatal in the really poor countries of the world where access to fuel for generators, fertilizers, transport, etc., will mean risk of famine/starvation/reduction of the capacity of nations to provide basic services.”

Of course, consumers have long had rationing by price for other commodities, such as Rolex watches and Mercedes cars. But the rationing of a commodity that is so crucial to modern society could have dramatic negative effects on billions of people around the world. After all, some 2.5 billion still use biomass – dung, wood, straw, etc. – for their home cooking needs. If they are completely priced out of the market for hydrocarbons, they will be destined to continue living in dire poverty.

But Wells and Maxwell, and the many other analysts who have been predicting peak oil, could still be proven wrong. Given the cyclical nature of the commodities sector and the recent slump in oil prices, it is foolish to make huge bets on oil prices. Furthermore, as the ongoing financial crisis seems to prove, no one knows anything. Forecasts and models are handy, but markets – and of course, prices – are inherently chaotic. A prolonged recession or a depression could choke world oil demand to the point where a peak in production matters little. And of course, other technologies could come along that could allow significant substitution for oil.

But inventors and investors have been searching for an alternative to oil for decades, and they have yet to find anything that approaches the flexibility and versatility of crude. The sudden oil price drop may result in a corresponding investment decline in alternative energy technologies. The punch line seems obvious: consumers around the globe will be relying on oil for decades to come. The unanswerable question is equally obvious: how much will that oil cost in 2015, 2020, or 2030?

If Wells and Maxwell are right, and I’m increasingly inclined to believe that they are, the U.S. and the rest of the world would be well served if they began taking steps to ameliorate the potential disruptions that will come from the oil price shocks that are looming large on the horizon.

source Nov. 26, 2008 By Robert Bryce

Exxon Mobil CEO Rex Tillerson blamed a third of the recent run up in oil prices on the weak dollar, another third on geopolitical uncertainty, and the rest on market speculation.

Look for more info on Rex Tillerson blamed weak dollar

Geopolitical uncertainties may relates to unrest in Nigeria's oil fields, the possibility of war between the U.S. and Iran, and the antics of Venezuela's Hugo Chavez threatened to disrupt oil supplies.

hmm but then again geopolitical uncertainties maybe due to concern over future energy security.

Another knock on the head point of view is coming from the chief of the Organization of Petroleum Exporting Countries (OPEC) Chakib Khelil who said"What's happening in the oil market is due to the mismanagement of the U.S. economy." Continuing U.S. trade and fiscal deficits along with lower interest rates are stoking inflationary fears.

Tim Evans, an energy futures analyst at Citigroup's Futures Perspective concluded that "the futures and options market has become more important than the physical supplies in driving the price,".

Investors are treating oil as a hedge against inflation and a falling dollar. Oil markets are part of a negative positive feedback loop in which higher oil prices contribute to higher inflation, which in turn lowers the value of the dollar, which boosts oil prices, and so forth. In other words, the oil market is coming to resemble the gold market (which has also been soaring).

Higher prices also encourage innovation. Economist Richard Rahn from the Institute for Global Economic Growth believes battery technologies are improving so rapidly that the majority of cars sold in 10 years will be all-electric. This would certainly help drive down the price of oil.

look for more info on new advanced battery

Inelasticity of demand and supply means that prices can fall as steeply has they rose. So what will happen to oil prices over the next few years? No one is predicting $10 per barrel oil. However, , Evans believe that the price of crude will settle at around $60 to $70 per barrel in the next couple of years after the bubble bursts.

Oil price looking pretty settled at $126 a barrel having reached as high in recent days as $128, what is the government estimate the future oil price to be?

Apparently, someone is sleeping at the wheel, please wake up the guy, we got a problem here. Please do something !!!

The official energy gurus made oil price projections based on three scenarios of low, central and high prices which reflect uncertainty over the outturn of future prices. The low prices scenario assumes a level oil price of 25$ per bbl throughout the projection period (2010 – 2020), a central scenario assumes $57/bbl in 2010, $50/bbl in 2015 and $52.5/bbl in 2020 and in the high price scenario where oil is $70/bbl in 2010 increasing to $80/bbl by 2020.

But we are already at RM 126 in May 2008, and climbing

This week saw the oil price reach new heights, going to $126.98 on Tuesday, dropping back and then rallying.

And these are some possible Key Drivers this week

• Brazilís President da Silva suggested that his country was considering joining OPEC
• Iran announced that it was undertaking a review of oil output, leading to fears that output would be cut
This maybe just a rumour but fear of supply shortages had its effect
• Tragic earthquake in Szechuan Province inevitably affected the energy industry coal mines, oil and gas wells may need to be shut downed some sometimes.

A few other factors that influent the supply and demand side of oil are in play that would affect the near future oil price. The delay in production at the major Kashagan oil field in Kazakhstan for several years as the Eni-led consortium and the Kazakh government continue to wrangle. And the expected economic downturn is causing EIA to reduce their demand figures for 2008.

The escalating oilfield service cost - cost of equipment and labor will also play small role in rising oil price.

Oil rose above $126 a barrel for the first time Friday (9th May 2008), bringing its advance this week to nearly $10, as investors questioned whether a possible confrontation between the U.S. and Venezuela could cut exports from the OPEC member. Gas prices, meanwhile, rose above an average $3.67 a gallon at the pump, following oil\'s recent path higher.

Source : Yahoo!Finance

Despite recent oil prices jump to new highs of more than $126 a barrel last week, many oil and gas industry executives say they expect the price to fall significantly by year’s end, a new survey shows.

Fifty-five percent of 372 petroleum industry executives surveyed by KPMG LLP said they think the price of a barrel of crude will drop below $100 by the end of the year. Twenty-one percent of respondents predicted a barrel of oil will end the year between $101 and $110, while 15 percent forecast the year-end price to be between $111 and $120 a barrel.

Nine percent said they expect the price to close the year where it’s been this week — above $120 a barrel.

That's what they say, so many experts in energy industry have made wrong predictions. There seems to be no reason for me to believe this. I am beginning to doubt that we are in control, we are in auto-pilot mode.

Fuel prices flatten FedEx

Fuel prices are killing FedEx. The freight company cut its fourth-quarter earnings forecast, citing a 7% rise in fuel prices since it made its last projection back in March. FedEx said it now expects to make $1.45-$1.50 a share, down from the previous forecast of $1.60 to $1.80 a share. FedEx said the weak economy “has restrained demand for U.S. domestic express package and LTL freight services,” but saved its strongest words for the surge in fuel costs driven by crude oil’s recent run to around $125 a barrel.

“While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices,” finance chief Alan Graf said. “This revised outlook assumes no additional increases to the current fuel price environment and no further weakening of the economy.” Shares fell 4% in postclose trading.

Source fortune.cnn.com

The worst has yet to come

Ever faster rises in crude prices are prompting the question - are we heading for a new oil crisis? Oil has been hitting new record highs virtually every day. Energy experts and even OPEC ministers are now talking about $200 a barrel being increasingly likely in the not too distant future.

The average price of US light crude in the month of May has risen from $25 a barrel in 2002 and now to over $126 on Friday.

OPEC General Secretary Abdullah Salem El-Badri said Thursday that the rise of oil prices should be attributed to volatility on financial markets and lots of speculations aroused by depreciation of the U.S. dollar.

He insisted the oil market was well-supplied, saying some OPEC member countries even could not find buyers for part of their oil.

Heading straight for a PERFECT STORM