$105 oil?
Oil could top $105 in major supply outage: expert By Haitham Haddadin Sun May 28, 12:52 PM ET
KUWAIT (Reuters) - A Goldman Sachs (NYSE:GS - news) projection that
oil prices could top $100 a barrel in the event of a major supply
disruption could be conservative in the current tight market, said a
senior executive with the investment bank.
Other energy experts told an energy forum late on Saturday in Kuwait
that global oil market fundamentals point to generally higher energy
prices as demand growth outstrips new supply.
“We thought that maybe somewhere within $50 to $70 (oil price) we
might get the economic damage and that it would take a major, not a
minor, disruption to get to the $105 number,” said Arjun Murti,
Managing Director at Goldman Sachs.
“If we truly did have a major outage in a major exporting country
then $105 will prove conservative,” Murti added at the National Bank
of Kuwait energy forum.
Murti said when Goldman Sachs issued a projected range of $50 to $105
a barrel in March 2005, actual prices hovered around $55 a barrel.
Oil prices in New York and London traded above $70 Friday.
Katherine Spector, head of energy research for JP Morgan Securities,
said market fundamentals point to petroleum prices reverting to a
higher mean in coming years. “The world is running out of easy
barrels of crude production,” she said, adding that marginal costs of
production are rising.
Both Spector and Murti said one factor that the oil markets will
remain focused on for the rest of this year would be the U.S.
hurricane season after Katrina caused big disruptions last year to
refining capacity on the U.S. Gulf Coast.
Hurricanes Katrina and Rita had shown “energy markets are highly
susceptible to a supply shock,” Murti noted.
Spector said another severe hurricane season predicted for this year
was bullish for oil and products prices as are changes to U.S. diesel
and gasoline specifications this year. But she said among factors
that are bearish for the market are relatively comfortable global oil
inventories.
ASIAN DEMAND
Other delegates told the forum that global oil market fundamentals
pointed to the possibility of higher prices given that global oil
demand is robust and tends to grow every year, especially due to firm
demand from China and India.
Edward Morse, executive adviser with Hess Energy Trading Co., said
that between 1965 and 2004, total Asian oil demand has risen 620
percent while world oil demand was up by 158 percent.
“Asian energy demand growth, especially oil demand, has been truly
extraordinary,” Morse said, adding that most analysts believe
incremental Asian demand growth drives the market.
On the supply side, spare capacity is gone, traditional areas of oil
production are mature and areas with growth are geopolitically or
demographically challenged, Murti noted.
“We believe that oil markets are in the early stages of what we are
calling a multi-year ’super-spike’ period,” Murti added.
Murti said total non-OPEC crude supply has grown in recent years
mostly due to Russia, but excluding Russia the supply from producers
that are outside the Organization of Petroleum Exporting Countries
has been essentially flat in recent years.
“Effective production capacity — that what actually can come out of
the ground today — is pretty close to zero,” he said. “Our point is
not that the OPEC countries are running out of oil. But the question
is, are we to believe that real-time production capacity is going to
grow, year in and year out, to match economic growth?.”