Colonel Gaddafi’s rather strange television appearance last night failed to quell the Libyan insurrection, and this morning has seen a mounting number of oil companies depart the country and the oil price continue to surge.
The news for Opec in the short term is bad, with Libya currently accounting for 1.6m barrels a day of oil production. In the long term, it could be even worse, however, especially if trouble spreads to Kuwait, with 2.3m b/d, Iran, with 3.7m, or even the big one – Saudi Arabia, with 8.3m.
Update: I’ll leave the blog below in tact, but really I should point out that the reason the oil price hasn’t moved is that the person quoted in the Wikileaked cable, Sadad al Husseini, is a well-known peak oil theorist who has said this in public many times before.
This morning’s story in the Guardian that US diplomats believed Saudi Arabia to have overstated their oil reserves should ring alarm bells around the energy world.
Every time there is a debate about whether Opec should raise production to lower oil prices, many commentators argue it is irrelevant: that the Middle East doesn’t have as much oil as it says and that it can’t raise production enough to bring prices down.
If this is true, it has serious consequences for the oil price. If Opec doesn’t have the slack to up production and bring prices down, they will have a lot further to go above the $100 barrier.
Analysts are currently rushing out their forecasts for 2011, and one thing that almost everyone seems agreed on is this: oil prices will remain high.
Last week, Barclays predicted that oil would hit $100/barrel at points during the next year. Today, Moody’s has made a slightly lower prediction, saying that it expected prices to average around $80/barrel over the year. (It is worth pointing out that these two are not mutually exclusive).
As ever, the driving factor is Chiinese demand:
Oil finally moved sharply higher late in the year, thanks to continued strength in Asia (particularly China), a weaker US dollar and an improving outlook for western economies…
We expect these fundamental and technical dynamics to continue in 2011, keeping oil prices strong.
Yesterday I blogged about the growing consensus among analysts that the price of oil was heading in only one direction: upwards. Barclays Capital, in fact, forecast it would hit $100/barrel this year, with Opec only taking action to increase production after a price spike.
Now the IEA has fired a warning shot across Opec’s bows with a stark warning from its chief economist, Fatih Birol. As Birol told the FT:
It is a very telling story. 2010 rang the first alarm bells and 2011 price levels could bring us to the same financial crisis times that we saw in 2008.
Oil prices neared 27-month highs yesterday, and analysts are expecting the run to go on and on. A survey of analysts yesterday by Bloomberg found they expected 2011′s average price to be the second highest ever.
Today, Barclays Capital has added to that sentiment, producing its list of five predictions for the oil price for 2011. Not one of them reads well for consumers.
Here are the bank’s five expectations for this year.
Image by Shell
In this week’s readers’ Q&A session, Peter Voser, the chief executive of Shell, answers your questions.
In the first of two posts, he addresses when and how the next oil price shock might happen, the future of the North Sea and why Shell left the Falklands.
In the second post, published above, he discusses the future of natural gas, the controversial process of “fracking” and why biofuels are the answer to powering transport.
Next in the hotseat is Chris Huhne, the UK energy secretary, who will be answering your questions on electricity market reform next Thursday, December 23rd. Send in your questions for consideration by the end of today – Friday, December 17th – to firstname.lastname@example.org.
But for now, over to Peter:
How much does Opec matter? This might appear a strange question to ask of the 12 countries who jointly possess about 80 per cent of the world’s known oil reserves, but the recent volatility of the oil market suggests the club may count for less than you might think.
Since the beginning of this month, oil prices have risen from about $83 per barrel to $89 before falling back down to $82. These swings had little to do with the availability of oil on the physical market and everything to do with speculative trading on the paper market, influenced by factors like the decline of the dollar and the Irish debt crisis. Opec has been little more than a bystander during this month’s rollercoaster ride.
Opec today raised its predicted level of oil demand for 2011 from 86.83m barrels per day to 86.95mbpd, or an increase of 120,000 barrels.
This would imply its current forecast is that demand growth will be 1.2mbpd higher than this year.
Interestingly, this comes out a few days after the IEA released its World Energy Outlook, showing its predictions have gone in the opposite direction. According to calculations by JCB Energy Markets, the IEA has “slashed 7.5mbpd out of its 2030 world oil demand forecast”.
Ali Naimi, the oil minister of Saudi Arabia, was in mischievous mood on Monday night, positing an oil price of $70 to $90 for the foreseeable future, and suggesting that oil consumers should be happy with such a settlement – because a price of more than $70 was needed to justify investments in renewable energy.
His remarks, which came in response to questions from the Financial Times at a dinner hosted by the Singapore International Energy Week, did not go down well with all sections of the audience – some were unhappy that the world’s biggest oil producer should suggest they be content with an oil price they felt was unnecessarily high.
Mr Naimi justified his $70 to $90 prediction, which he called a “comfortable zone” that should be welcomed by oil producers and consumers alike, by reference to renewable energy, which he suggested gave oil an “anchor” price. If the oil price were to fall below $70, then renewable energy would not be competitive, he said.