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Asia's need for oil could push price up to $150
By Marcus Hand, Kuala Lumpur and Michelle Wiese Bockman, London - Monday 9 June 2008
Hayward: we need to response more effectively.
ASIA’S voracious appetite for crude could push prices to as high as $150 per barrel by early July, with Middle East cargoes to the US falling away and record volumes shipping to Asia.
Brokers report that the number of very large crude carriers booked to carry oil from the Middle East to the US is forecast to fall to 105 this month, compared to normal fixtures of 110-120.
Investment bank Morgan Stanley said that Asia’s “unprecedented share” of Middle East oil, and stagnant global production levels, had served to price out Atlantic basin consumers.
Morgan Stanley’s $150 per barrel forecast comes after Asia led record-breaking chartering activity for very large crude carrier fixtures last April.
By contrast, Atlantic inventories have been driven to “critically low levels”.
Nor Ocean broker Per Mansson told Lloyd’s List that lower volumes of crude cargoes were due to high oil prices.
“Now the oil price has gone really crazy so volumes might be cut over the summer months,” he said.
Clarkson brokers said they expect there will be around 110 June cargoes with volumes heading to the US, and the number to decrease slowly.
High oil prices are set to stay driven by an imbalance in demand and supply, according to top oil industry executives, analysts and politicians attending the the Asia Oil & Gas conference in Kuala Lumpur this week.
“It seems the era of cheap energy is over for the medium term. Within the last few months the oil price has topped the record levels we saw in the 1970’s and continues to hit new highs,” BP chief executive Tony Hayward told the 1,300 attending delegates.
“Markets are anxiously facing the possibility of crude oil prices rising as high as $200 per barrel,” Malaysian Prime Minister, Abudullah Ahmad Badawi warned in a keynote address.
Goldman Sachs global head of commodities research Jeffrey Currie predicted the oil price would hit $150 per barrel in the next few months.
“I would suggest that the likelihood of that happening sooner has increased tremendously... sometime in summer,” he said.
But not everyone saw the price continuing to rise in the coming months and Fereidun Fesharaki, chairman and chief executive of FACTS Global Energy Group, suggested it may fall by $20 to $40 per barrel in the next two months.
“If there is going to be a retreat it has to be in next 6 to 8 weeks before the winter. If it does go down it can go down very fast,” he said.
Dr Fesharaki said that until the oil price hit around $105 per barrel the increase had been largely driven by fundamentals rather than speculation.
Top oil industry executives blamed high oil prices on serious constraints in supply driven by low investment in the 1980’s and 1990’s in new production being unable meet demand from developing nations and a growing global population.
“In a well functioning market where supply and demand are balanced, prices should be stable. Where prices are high however, they show that supply is not responding adequately to rising demand. And that is where we find ourselves today,” Mr Hayward explained
Demand growth has been driven by both rising incomes and a rapid population growth which has nullified gains in increased efficiency in energy use.
“What is often is not talked about is the increasing numbers of consumers,” said Tan Sri Hassan Marican, chief executive of Malaysian national and gas company Petronas. Emerging economies were expected to drive demand growth by around 2.2% a year till 2030.
“The industry’s chronic levels of under-investment in the 1980’s and 1990’s have contributed significantly to today’s production constraints,” Tan Sri Hassan said.
Echoing this statement Mr Hayward said: “We need to respond more effectively, and to bring on new production. That response is being somewhat hampered by 25 years of low investment because of low prices.
“The result is the supply chain is being stretched to breaking point.”
Figures from Goldman Sachs showed that since 2004 average annual oil supply growth had slowed to 1% compared to 1.8% previously. While supply in the Middle East is up 2m bpd since 2000, this has gone to meet demand in that region itself and exports are actually at below the level they were in 2000.
The oil industry is also experiencing a wide variety of cost pressures and Tan Sri Marican said that costs had increased on average 200% over the past three years.
“The industry as a whole, if you look at the entire value chain which includes service providers, is reaching a very critical stage. If you talk about rigs, talk about vessels, human resources… equipment manufacturers the entire chain is being affected,” he said. - With additional reporting by Martyn Wingrove.
