The argument since 2004 was that with oil prices rising to record highs, industrialised countries would turn back to nuclear power as a cheaper source of energy. Uranium, the fuel of the nuclear industry, prices reacted to that argument, surging since 2004 to reach in June a record high of $136 a pound.

But the close relationship between crude oil and uranium prices fell apart during the summer and recently prices had moved in completely opposite ways. This week, crude oil prices surged to an all-time high of $84.10 a barrel while uranium prices fell their lowest level since March of $85 a pound.

Despite the price drop, uranium is trading well above its $10 a pound historical average. Indeed, uranium prices are today a 700 per cent higher than in January 2003, while crude oil prices are just a 150 per cent higher. And most Wall Street banks are still bullish.

(more…)

With oil prices trading above $80 a barrel, Wall Street banks have raised their price forecast for the rest of 2007 and 2008. In some cases, the prices updates released this week, as the oil prices hit a fresh all-time high of $82.51 a barrel, are significantly large.

Unclear is for now what would be the economic impact of oil prices above $80 a barrel.

Goldman Sachs led the bulls with a price target for West Texas Intermediate for the end of 2007 of $85 a barrel, up from an earlier forecast of $72 a barrel. The bank also introduced a price target of $85 a barrel for 2008, with a year end forecast of $95 a barrel.

Jeffrey Currie, head of commodities research at Goldman Sachs in London, said that despite only modest demand growth this past year, anemic oil supply growth has pushed the market into a significant deficit. This has created “the first cyclical bull market since 2003 that will likely carry into 2008,” Mr Currie added.

Barclays Capital has raised its price forecast for 2007 to $68.8 a barrel from $66.3 a barrel. The bank, which has been one of the most accurate oil price forecaster in recent years, also raised its 2008 price forecast from an earlier $73.9 a barrel to $77.0 a barrel.

(more…)

Oil prices at $80 a barrel should be a source of happiness to crude oil producing countries. But the Organisation of the Petroleum Exporting Countries is not happy.

Abdalla el-Badri, Opec secretary general, said in its first response to the current record prices that oil prices were high and would not last, because they are not supported by oil market fundamentals.

“Prices are high. We are not favour of high oil prices,” Mr el-Badri told a small group of journalists, including myself. “I don’t think it’s permanent.”

“The fundamentals do not support the price at this time,” Mr El-Badri said after Opec this week agreed to increase its production by 500,000 barrels a day.

For Opec, the price reaction to its supply hike has been a blow. The oil cartel presented the decision as its contribution to prop up the world economy hit by the current credit squeeze.

“We care about you,” was Opec’s message on the day of the announcement.

But instead of prices cooling down, as the cartel hoped, crude oil cost surged hours later to a new all-time high of $80.20 a barrel. And oil analysts and the International Energy Agency, the industrialised countries’ energy watchdog, instead of welcoming the production hike, said that it was “too little, too late.”

The price surge has been a bad coincidence, Mr el-Badri explained, saying that Opec’s decision came as a tropical storm hit several US refineries and just a day after rebels blow up several natural gas pipelines in Mexico.

Mr el-Badri has a point here, but that is not going to change the public perception of Opec in consumer countries.

As the Organisation of the Petroleum Exporting Countries discusses a production increase, as important as the actual volume of the hike is the level from which the increase would take place.

Opec, which controls 40 per cent of global oil production, is discussing a production hike of between 500,000 and 1.0m barrels a day. A 700,000 b/d rise has been suggested as a compromise.

A key question under debate is from which level the increase takes place. That is not an easy subject under Opec’s complicated system of production limits.

(more…)

When Ali Naimi, the Saudi Arabia oil minister, talks, the oil market moves. But Mr Naimi, the most influential Opec minister, has remained silent for the last five weeks and has said nothing so far in Vienna in the run-up to Tuesday’s Opec meeting.

The silence is raising eyebrows among the analysts and consultants that gather here in Vienna for the meeting. They are perplexed by the Saudi tactics and are agonising over their coffee at the ministers’ hotels in the Austrian capital looking for some new development to tell the oil traders in London and New York.

This morning, at Mr Naimi’s briefing – which involves journalists, including me, jogging with the minister at 7.30am – it was silence again. Not a single word on Opec’s policy.

Some analysts think Mr Naimi is waiting to surprise the market – and Opec colleagues – in a tactic used several times in the past.

Those who support this theory say that Saudi Arabia may push the oil cartel for an output increase to cool-down red hot oil prices. As most countries oppose the move, Saudi would be quietly trying to convince others on the need of the increase, the analysts said.

Others say that the Saudi silence is due to the desire of the kingdom to maintain a low profile in the Opec meeting as oil prices approach $80 a barrel.

These analysts argue that the last thing Mr Naimi wants, is to be seen in Washington, especially in the midst of the subprime crisis, as responsible for higher crude and petrol prices. Those who support this theory say that Saudi Arabia would not push for a production increase and, that in fact, the kingdom is satisfied with the current oil price and market.

You think $78 a barrel for Brent crude oil and $3 a gallon for petrol is high? Wait until the winter and today’s prices will seem like a bargain, warns Goldman Sachs.

Oil prices have risen within a whisker of their all-time highs. On Monday Brent crude oil hit an intra-day high of $78.40 a barrel, just 25 cents below last August’s all-time high of $78.65 a barrel (here the FT’s story). Investors cashed in their profits on Tuesday sending Brent crude oil down to $76.00 a barrel.

Looking ahead, the US investment bank said on Monday in a report that oil prices could hit $90 a barrel by the autumn and $95 in winter unless the Organisation of the Petroleum Exporting Countries increases its output.

Jeffrey Currie, of Goldman Sachs in London, said: "An increase in Saudi Arabian, Kuwaiti and United Arab Emirates production by the end of the summer is critical to avoid prices spiking above $90 a barrel this autumn."

(more…)

The International Energy Agency, the industrialised countries’ energy watchdog, on Friday said oil demand in 2008 will grow by 2.5 per cent to 88.2m barrels a day (the FT story is here) in spite of record high oil prices.

It also called for Opec to increase its output to avoid a tight oil market in the second quarter of the year. Oil prices, meanwhile, are rising.

The acceleration in demand growth of 1.5 per cent this year suggests that the traditional relationship between oil prices and demand is breaking apart. Or is it?

If you have asked the Energyfilter team five years ago what would happen with oil demand if prices averaged in any year $65 a barrel, the response would be: a sharp drop! For the record, Brent oil price averaged $66.1 a barrel in 2006 and so far this year the price average is $64.5 a barrel.

But prices still matter, although far less than they did in the 1980s and 1990s. Last year, the IEA also projected strong demand growth for 2007, only to be forced to cut that estimate as ongoing oil prices dent some of the consumption increase.

That transformed a forecast published just a year ago for oil demand growth in 2007 of 1.8 per cent to another now of 1.5 per cent. Still, that is peanuts if you think about how tight supply is.

(more…)

The International Energy Agency, the industrialized countries’ energy watchdog, on Monday warned on a crude oil “supply crunch” in the next five years on the combination of strong consumption and lagging supply.

The IEA said that “oil looks extremely tight in five years time” and there are “prospects of even tighter natural gas markets at the turn of the decade.”

Although the energy watchdog is not in the business of predicting oil prices, analysts said that the IEA’s balance of supply and demand pointed to a growing risk of higher oil prices to 2012. However, an increase in refinery flexibility and capacity could help to ease the price pressures.

In summary, here is the bad, the very bad, the good news and debate:

(more…)