Oil price could force power cuts

Washington (AP)

Oil prices could rise as high as $50 per barrel before the year is up, analysts said, as the world’s growing thirst for crude stretches supplies thin and uncertainty abounds in petroleum-producing nations.

A sharp rise in crude prices, even if temporary, could mean power cuts, throwing off-grid power sources such as solar or generators into sharp focus.

The fundamental fact is that oil is tight, said Leo Drollas, chief economist for the London-based Center for Global Energy Studies. Drollas said he believes $40 is a more likely price in the next month or two, although if demand is strong, and the weather is cold, this winter prices could reach $50.

The main reason for soaring prices is that global demand has risen faster than producers had expected, leaving the market with very little cushion in the event of an unexpected supply problem, terror-related or otherwise.

PFC Energy, a Washington-based consulting firm, estimates that total global production will average 82.1 million barrels a day in 2004, or just 100,000 barrels a day above consumption.

Recent geopolitical uncertainty in countries such as Russia and Iraq has made energy traders edgy, raising fears that the supply-demand balance could tilt further in the wrong direction.

There is also concern about production out of Nigeria due to labor unrest, and out of Venezuela, due to political uncertainty. Next week, there will be a presidential recall ballot in Venezuela.

It doesn’t seem any supplies available in the near term will dampen prices, said Peter Beutel, president of energy consulting firm Cameron Hanover Inc. in New Canaan, Conn. I dont know if we’ll see $50, but it looks like prices want to climb higher here, Beutel said.

Worldwide demand for oil has grown by nearly 3 million barrels a day, or 3.6 percent, in the past year, according to PFC Energy, with about a third of that extra consumption occurring in China. Demand is up by about 350,000 barrels a day in the United States.

The demand growth in China and the U.S. has caught a lot of the producers by surprise, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. The thing is, Flynn said, a lot of stuff has to go just right for us to avoid $50 a barrel.

Even at $50 per barrel, prices would be more than 40 percent below the levels reached during the oil crisis of the early 1980s, when inflation is taken into account.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.


Join the global off-grid community

Register for a better experiencE on this site!

Available for Amazon Prime