Surge in oil prices not just speculation, officials say
Oil prices verging on $100 a barrel are the result of skimpy supplies colliding with strong growth in China, the United States and the rest of the world, and not just the work of speculators, the nation’s chief energy forecaster concluded Nov. 6.
That means gasoline prices could top a record $3.20 a gallon by the end of the year and $4 a gallon by spring, analysts say, creating a monumental energy crunch for consumers who also are facing doubledigit increases in their home heating bills this winter. Regular gas prices passed back through the $3 barrier on Nov. 6.
The International Energy Agency says that an even bigger worldwide energy crisis is possible within a few years because of rapid economic growth in China, India and other emerging countries and slow production increases by major oil exporters, which could lead to oil shortages by 2015.
“A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out,” the international agency said in a report released Nov. 7. The agency particularly faults the Organization of Petroleum Exporting Countries (OPEC) for failing to make the massive investments in oil exploration and drilling needed to keep up with soaring demand for energy around the world.
The outlook for this winter does not envision fuel shortages, but it is hardly comforting. For the first time in years, consumers are facing the likelihood of having to contend with record high gasoline prices at the same time they are suffering from the sticker shock of home heating bills that are forecast to be 10 percent to 40 percent higher than last year.
“We expect regular nationwide gasoline quotes to increase 40 cents to $3.20 a gallon by the end of the year, representing an annualized hit to spending power of about $50 billion,” said David Greenlaw, economist at Morgan Stanley.
Consumers usually get a little relief from high gas prices in the winter as a result of a seasonal pattern where both oil and gasoline prices have dropped after Labor Day and the end of the summer peak driving season. While gasoline prices started to follow that pattern this year, world oil prices did not go along and instead started a steep ascent that has confounded analysts and forecasters.
Mr. Greenlaw and other forecasters for weeks have blamed speculators and the declining dollar as principal culprits behind the enormous spike in premium crude prices from $70 a barrel in mid-August to $96.70 in New York trading yesterday. Since oil is priced in dollars, the recent sharp fall of the currency has contributed to escalating prices. Speculators have latched onto the trend and placed bets on further rises in oil prices.
The speculative fervor for weeks had little impact on U.S. consumers since pump prices remained relatively low, but that anomaly dissipated in recent days when gas prices started to rise steeply. The nationwide price now stands 81 cents above year-ago levels, according to the U.S. Energy Information Administration.
The widely respected independent agency declared that the sharp rise in oil prices was not primarily the result of speculation but rather reflected the robust growth of demand for fuel, mainly in the U.S. and China, amid sluggish growth in supplies.
The agency also said demand growth has been robust in oil-producing nations in the Middle East and Russia, and their thirst for gasoline has been aided by their growing war chests of petrodollars.
Meanwhile, OPEC curbed its production for most of the year until this month, when it lifted output by a meager 500,000 barrels a day, forcing the U.S. and other countries to draw down their stores of crude to meet rising fuel needs. That has left inventories of oil worldwide at tight levels, the agency said.
Adding to the pressure on prices is OPEC’s small cushion of surplus capacity — 2 million to 3 million barrels a day, primarily in Saudi Arabia — should a supply cutoff result from tensions with Iran or other disruptions. The world consumes about 85 million barrels of oil a day.
An uprising in Nigeria — a key supplier of premium crude to the U.S. — has shut down more than half a million barrels of production a day since February 2006, the agency estimated, while Venezuelan production also has waned since 2002 and could decline further as a result of the country’s recent nationalization of its oil industry. Instability in Iraq’s northern oil-producing region bordering Turkey also has pressured prices recently.