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Price of Crude is Up Again

Posted on: Tuesday, 23 August 2005, 12:00 CDT

Just as oil prices appeared to be in firm retreat, unrest from abroad caused the price of crude to jump more than $2 a barrel Friday, the result of deep concern over world oil supplies.

Absent a sharp drop in world oil demand, it's a pattern that will surely continue, said Tulsa oilman Dewey F. Bartlett Jr.

"There's more reason for it to go up than down," Bartlett said. "Any perceived problem has an immediate effect on the market."

The reason: The gap between supply and demand is razor thin.

The industry is operating near maximum output, producing more than 83 million barrels a day. Spare production capacity -- a safety net against disruptions in supply -- is low at just 1.5 mil lion barrels a day.

"All it takes is a sneeze or hiccup and suddenly the oil price has an immediate reaction," Bartlett said.

Meanwhile, a few Tulsa-area gasoline stations raised the price of regular-grade gasoline a dime to $2.59 a gallon Friday. But most were still charging $2.49 for the same grade of fuel.

After rising to record highs last week, oil futures plunged 7 percent this week to $62.25 a barrel on the New York Mercantile Exchange. But the price came roaring back Friday, gaining $2.08 to settle at $65.35 a barrel, still below the intraday high of $67.10 on Aug. 12.

"It just shows how tight things are," said industry consultant Wayne Swearingen.

Some of the world's largest oil fields are declining in production, including Saudi Arabia's Ghwar, the world's largest oil field, Swearingen said.

"It's in secondary recovery," he said. "They're injecting water and natural gas, trying to maintain productivity."

In addition, the industry is not discovering nearly as much oil as it produces, Swearingen said. Meanwhile, the Department of Energy estimates world oil demand will rise 40 percent to 119 million barrels a day by 2025.

All this means oil and gasoline prices will be higher from year to year, Swearingen said.

"We're headed well above $100 a barrel," he said. "That would be roughly $4 a gallon at the gas pump."

Already worried about the industry's ability to meet demand, traders pushed prices higher Friday in reaction to a number of unsettling events in the Middle East and elsewhere.

A fire at a large refining complex in Venezuela, a chief supplier of oil to the United States, slashed the facility's output by 63 percent to 150,000 barrels a day. Protests in Ecuador disrupted most of that nation's daily output -- 201,000 barrels. In Nigeria, hundreds of villagers surrounded and shut down a pumping facility operated by Royal Dutch/Shell PLC. The villagers were angered over compensation for an oil spill nearly two years ago, The Associated Press reported.

Also, supply concerns heightened after at least three missiles were fired Friday near Navy ships at a Jordanian port near the border of Saudi Arabia, the world's largest oil exporter.

In addition, investment banks Merrill Lynch and Goldman Sachs have raised their forecasts for oil prices.

Goldman increased its long-term forecast from $45 a barrel to $60. Its projection for the rest of this year was increased $13.50 a barrel to $67. Goldman's forecast for 2006 is $68, up $13.

Merrill Lynch boosted its projection for 2005 by 10 percent to $56 a barrel. In 2006, it expects prices to average $52.

Nearly 60 percent of the oil consumed in the United States is imported. Imports of petroleum products have also grown to disturbing levels, Bartlett said.

"We used to be able to refine everything we needed. That's not true anymore," he said. "We now import 10 to 12 percent of our gasoline, diesel fuel and jet fuel needs."

Russell Ray 581-8380

russell.ray@tulsaworld.com

Source: Tulsa World

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