Business Times - 04 Jul 2005

Oil could reach US$100 a barrel: analyst

(LONDON) Oil prices could rocket to US$100 within six months, plunging
the world into an unprecedented fuel crisis, The London Observer quotes
controversial Texan oil analyst Matt Simmons as warning.

After crude surged through US$60 a barrel last week, nervous investors
were pinning their hopes on a build-up in US oil-stocks to depress
prices in the coming months, the Sunday paper said.

But Mr Simmons believes surging demand will keep prices bubbling well
above US$50. 'We could be at US$100 by this winter. We have the biggest
risk we have ever had of demand exceeding supply. We are now just about
to face up to the biggest crisis we have ever had,' he said.

The Organization of the Petroleum Exporting Countries (Opec) producers
held emergency talks last week to consider making their second 500,000 a
barrel increase in production quotas in a fortnight: but the discussions
were suspended last Thursday after prices dipped back below US$60.

The looming oil crisis is not high up the agenda at this week's G8
meeting, although the heads of state are expected to repeat their
finance ministers' call for greater transparency from Opec and other
oil-producing nations about their reserves.

However, global warming is one of Britain's two major priorities, and
Prime Minister Tony Blair hopes to secure a pledge to pour more cash
into developing alternatives to the oil-intensive technologies that
cause climate change.

Mr Simmons believes such moves will be too little, too late. He will
publish a hard-hitting book this week in which he argues that Saudi
Arabia, the world's largest producer, is running out of oil, and
further price rises are inevitable as supplies decline. He warns that
the scramble for resources could eventually descend into war. Many
analysts expect extra production over the next year, as high prices
boost investment by energy firms. But Mr Simmons says after many years
of underinvestment, there is even a shortage of drilling rigs.

'Many of these projects are aspirations; many of them won't create peak
production in the first year, and many of them within five years will be
in decline,' he said.

However, the Economist Intelligence Unit (EIU) predicts that oil prices
will peak by the end of this year, and decline by 10 per cent in 2006 as
the Chinese economy slows, reducing demand.

Chinese imports have been crucial to propping up the oil price in the
last two years. But the EIU warned that its forecasts - which show a 30
per cent increase in oil prices for 2005 - could prove too conservative
if there are further wobbles in supply. 'The narrow margin of spare
production capacity has made prices vulnerable to unforeseen reductions
in supply or rises in demand,' it said.

Paul Horsnell, head of commodities analysis at Barclays Capital, said
supply constraints would continue to bite for the rest of the year.
'It's all getting a bit tight.'

Brent crude closed almost US$2 a barrel higher in New York on Friday
night, while futures contracts for heating oil, widely used in the US,
hit a record high, which analysts said was unusual for summer.

'It's fear,' said Kyle Cooper, an analyst at Citigroup. 'It's not
based on what is happening now. It's based on fear of what could
happen.'

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