Analysts See Oil Breaking $100; Energy Watchdog Sees Costs Much Higher

By Jason Simpkins
Associate Editor

Oil continued its march towards a $100 a barrel yesterday (Wednesday), briefly topping $98 a barrel, before receding.

Evidence of tightening supply has caused oil prices to climb 8% in the past two weeks, while a weak dollar, political conflict, and increased demand from emerging markets caused oil to soar $30 since mid-August.

According to a new report from the International Energy Agency (IEA), however, those problems may well be just the tip of the iceberg.

Analysts surveyed by Dow Jones Newswires had predicted a staggering 1.6 million barrel decline, but the EIA reported a decrease of a mere 800,000 barrels. Also, refinery utilization remained flat, while analysts had expected a 0.8% increase. As a result, crude-oil prices retreated from its lofty $98 level back to the $95 mark.

Still, most analysts believe $100 oil is a certainty at this point, and a recent report from the IEA supports that position. In its annual World Energy Outlook, released Wednesday morning, the watchdog group declared an urgent need for increased investment to meet the need for oil, gas and electricity.

The report acknowledged investment in the oil industry will likely rise over the next five years. But it's unclear whether that investment will be enough to offset declining output from existing fields and torrid demand from such emerging markets as China.

The IEA said China's oil demand will more than double to 16.5 million barrels a day by 2030, and world energy demand will increase seven-fold.

According to the agency, China and India will account for 45% of the increase in global primary energy demand through 2030. It also said their growing appetite for crude oil imports, which are expected to quadruple by 2030, could create a "supply" crunch as early as 2015.

"A supply-side crunch in the period to 2015 involving an abrupt run-up in prices cannot be ruled out," the report said.

As far as supply is concerned, the IEA estimates that 75% of the increase in oil supplies by 2030 will come from the Middle East and Russia.  If that turns out to be true, dependence on supply routes from the politically unstable Middle East will increase. So, too, will the world's vulnerability to the disruption of those supply lines.

An increased dependence on oil from the member nations of the Organization of Petroleum Exporting Countries (OPEC), as well as increased vulnerability to disruptions, will no doubt drive the price of oil even higher.

Grimmer still was the IEA's assertion that - based on current trends - global carbon emissions would increase 57% by 2030. The agency predicted that would result in a temperature increase of five to six degrees Celsius (7.5°F -10.8°F). Even if governments put in place all of the "green" policies that are currently being considered, the report said, emissions would still rise by more than a quarter over the same period, giving a three-degree (5.4°F) temperature increase.

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