OIL DROUGHT: Where's The Oil?
DJN: =DJ OIL DROUGHT: Where's The Oil?
By Stephen Parker
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Fill it up.
The world's running on empty, just two years after the Asian financial
collapse left it swimming in cheap oil.
Oil at $40 a barrel seemed likely in August, and prices this year have
stayed above $30 for the longest period since the early 1980s. Rock bottom
petroleum stockpiles are a big reason why.
How long will the drought hang on?
The dry times don't mean we're running out of oil, oil companies and energy
analysts say. But tight supplies might last at least until the start of next
year. And while stores of crude, gasoline and other fuels have started to
build, the U.S. is still at risk of heating oil shortages this winter.
"In physical oil supply terms, there's not a crisis," said Michael Wittner,
principal administrator of oil supply analysis at the International Energy
Agency in Paris, France.
The IEA, a world authority on energy statistics, said world crude oil supply
and demand is starting to come back into balance.
The world consumed about 75.5 million barrels of oil each day during the
third quarter of 2000, according to Wittner. Daily world supply was about 77
million barrels a day during that period, he said.
Crude oil prices are likely to fall to into a $22-$28 a barrel range next
year, and could decline moderately from that level through 2004, according
to Merrill Lynch.
But as recently as August, the American Petroleum Institute and the U.S.
Department of Energy reported that crude oil stocks had reached a 24-year
low. Crude oil hit a post Gulf War high partly on that news and headed
toward $40 a barrel.
All year long, the effects of low inventories have been clear.
European truckers took to the streets to protest high fuel costs there as
the summer ended. U.S. truckers drove their rigs to the White House this
spring to rail against high diesel prices, gasoline prices caused flareups
in the Midwest, and heating oil became a political football before the
presidential election.
President Clinton in September authorized a draw on the U.S. Strategic
Petroleum Reserve to cool off overheated energy markets and avert potential
heating oil shortages this winter. It was the first major peacetime use of
the SPR to address a potential shortage since the reserve's founding in the
1970s.
Even with the SPR tap, the U.S. faces a "real crisis" with potential heating
oil shortages, according to John Kilduff, senior vice president of energy
risk management at Fimat USA, a commodities trading firm.
Thin supplies last winter sent heating oil prices higher than $2 a gallon in
some Northeastern cities.
Right now, total U.S. crude oil stockpiles are 16.7 million barrels above
the 270 million needed to keep the distribution system running smoothly,
according to the U.S. Department of Energy's Energy Information
Administration.
At that level, there's "some degradation" in the U.S. oil industry's ability
to respond to supply shortages, according to Michael Conner, a statistician
at the Energy Information Administration, an arm of the U.S. Department of
Energy.
Cheap Oil Got Us Into This
It may be hard to believe that supplies are short, just two years after
consumers enjoyed an oil glut.
But it was the cheap oil environment that lead directly to today's tight
supplies.
"Ironically, the Organization of Petroleum Exporting Countries took
production down just as the Asian economies - and their oil demand - started
going back up," Chevron Corp. CEO David J. O'Reilly said in a speech earlier
this year. "The surplus disappeared. World oil inventories fell to historic
lows. And the oil market reacted with $30-a-barrel oil. So in just a year's
time, we went from one extreme to the other."
OPEC has been divided, publicly at least, over whether low stockpiles have
reached crisis proportions.
In the days following the group's September decision to boost crude
production by 800,000 barrels a day, two OPEC leaders gave markedly
divergent reports on supply.
"I can assure you that there is more supply in the market today than there
is demand, and you will be seeing inventories building and prices will come
down," said Ali Naimi, oil minister of Saudi Arabia, the world's biggest oil
producer.
OPEC president Ali Rodriquez painted a far more dire picture. He predicted
"a very severe crisis if capacity limitations of OPEC and non-OPEC countries
stay as they are."
Crude prices could come down by the beginning of next year, in part because
Saudi Arabia may begin pumping more, some analysts say.
"My sense is that the Saudis have enough capacity and are prepared to use it
to bring markets into balance no later than the beginning of the new year,"
said Larry Goldstein, president of Pirinc, Inc. an energy think tank.
And in the long-term, oil supplies are widely expected to be plentiful.
Lured by high prices that bring fat profit margins, oil companies have begun
investing in the Middle East and deep-water drilling projects around the
world.
The investments are expected to yield results over the next two years.
Companies must invest heavily - about $1 trillion worldwide over the next
decade - to increase production and keep pace with growing consumption,
according to Michael Economides, an adviser to oil company majors.
"Nobody knows for sure where prices will go," Chevron's O'Reilly said in his
speech. "But we do know that the forces at work today - the expanding
marketplace, geopolitics, globalization - will only grow stronger. Together
they suggest that the polarized energy world of the 1970s is giving way to
something new." |
