Experts agree that cheap oil will not return any time soon
Herald.com | 10/26/2005 | Experts agree that cheap oil will not return any time soon
Most experts agree that oil prices will remain high in the future thanks to recent hurricanes and a tightening international oil supply.
BY TAREK EL-TABLAWY
Associated Press
NEW YORK - While the most dire predictions have been largely dismissed as alarmist -- gasoline prices in the United States of up to $6 a gallon and crude oil climbing to $105 a barrel in 2007 -- analysts warn consumers could face price spikes and won't soon be returning to pump prices that propelled the popularity of gas-guzzling SUVs.
The consensus is that the era of cheap oil for U.S. consumers, accustomed to some of the lowest prices in the industrialized world, is over -- at least for the next few years.
''We have very little spare capacity internationally to provide enough crude oil to the system to tolerate any more of these types of disruptions,'' said Ken Miller, an analyst with the Houston-based consultancy Purvin & Gertz.
Price surges over the past couple of years were in part driven by unrest in countries -- Iraq and Nigeria, for example -- central to international oil production.
SUPPLY AND DEMAND
But the impact of Hurricanes Rita and Katrina brought into sharper focus the tenuous supply and demand balance in the United States and rekindled the debate about how it would affect consumer driving patterns.
Preliminary indications from the federal government are that consumer demand for gasoline cooled slightly in the face of high prices further inflated by the aftermath of Rita and Katrina. Americans are simply not as used to high gasoline prices as Europeans, for example, who have learned to conserve as a result of hefty taxes at the pumps.
Global petroleum demand, however, continues to grow, according to the Energy Information Administration. The Energy Department's statistics arm said growth is projected to average 1.8 percent in 2005 and 2006, based largely on Asian markets, tight refining capacity and no new oil.
The projected figure is actually half of the 3.2 percent last year.
''I don't think anybody anticipated the huge growth in demand for 2004,'' said the EIA's Dave Costello. ``That, of course, was part of the problem.''
Also part of the problem was a roughly two-thirds reduction in the daily spare crude oil production capacity of four to six million barrels.
''The first line of defense used to be drawing on stocks, and the last was price,'' said Larry Goldstein, president of the Petroleum Industry Research Foundation in New York.
PRICES RISE
''Today, there's not enough spare crude or refining capacity,'' Goldstein added. ``So, there's only price that's left as the defense mechanism.''
Katrina and Rita temporarily shut down at least 80 percent of the Gulf Coast's crude oil and natural-gas production and crippled many refineries when they would have been shifting away from gasoline to heating oil.
This sets the stage for further price spikes, assuming the global economic growth continues at 3 percent and some refiners take down their plants for maintenance deferred by the hurricanes, argues oil economist Philip K. Verleger.
The EIA predicts gasoline prices will average $2.45 per gallon, down from $2.73 per gallon currently.
Analysts and economists indicate that high global energy prices could dampen demand in the coming year.
Most experts agree that oil prices will remain high in the future thanks to recent hurricanes and a tightening international oil supply.
BY TAREK EL-TABLAWY
Associated Press
NEW YORK - While the most dire predictions have been largely dismissed as alarmist -- gasoline prices in the United States of up to $6 a gallon and crude oil climbing to $105 a barrel in 2007 -- analysts warn consumers could face price spikes and won't soon be returning to pump prices that propelled the popularity of gas-guzzling SUVs.
The consensus is that the era of cheap oil for U.S. consumers, accustomed to some of the lowest prices in the industrialized world, is over -- at least for the next few years.
''We have very little spare capacity internationally to provide enough crude oil to the system to tolerate any more of these types of disruptions,'' said Ken Miller, an analyst with the Houston-based consultancy Purvin & Gertz.
Price surges over the past couple of years were in part driven by unrest in countries -- Iraq and Nigeria, for example -- central to international oil production.
SUPPLY AND DEMAND
But the impact of Hurricanes Rita and Katrina brought into sharper focus the tenuous supply and demand balance in the United States and rekindled the debate about how it would affect consumer driving patterns.
Preliminary indications from the federal government are that consumer demand for gasoline cooled slightly in the face of high prices further inflated by the aftermath of Rita and Katrina. Americans are simply not as used to high gasoline prices as Europeans, for example, who have learned to conserve as a result of hefty taxes at the pumps.
Global petroleum demand, however, continues to grow, according to the Energy Information Administration. The Energy Department's statistics arm said growth is projected to average 1.8 percent in 2005 and 2006, based largely on Asian markets, tight refining capacity and no new oil.
The projected figure is actually half of the 3.2 percent last year.
''I don't think anybody anticipated the huge growth in demand for 2004,'' said the EIA's Dave Costello. ``That, of course, was part of the problem.''
Also part of the problem was a roughly two-thirds reduction in the daily spare crude oil production capacity of four to six million barrels.
''The first line of defense used to be drawing on stocks, and the last was price,'' said Larry Goldstein, president of the Petroleum Industry Research Foundation in New York.
PRICES RISE
''Today, there's not enough spare crude or refining capacity,'' Goldstein added. ``So, there's only price that's left as the defense mechanism.''
Katrina and Rita temporarily shut down at least 80 percent of the Gulf Coast's crude oil and natural-gas production and crippled many refineries when they would have been shifting away from gasoline to heating oil.
This sets the stage for further price spikes, assuming the global economic growth continues at 3 percent and some refiners take down their plants for maintenance deferred by the hurricanes, argues oil economist Philip K. Verleger.
The EIA predicts gasoline prices will average $2.45 per gallon, down from $2.73 per gallon currently.
Analysts and economists indicate that high global energy prices could dampen demand in the coming year.
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