$70 per barrel oil?

[Louis Proyect <lnp3@xxxxxxxxx>]

NY Times, June 18, 2005
Rumors Put Oil Traders on Edge
By SIMON ROMERO

HOUSTON, June 17 - A hint of a terrorist threat in Nigeria, a major
supplier of crude oil to the United States, and worries about a lack of
refining capacity drove energy markets into a frenzy on Friday, pushing oil
over $58 a barrel, a record.

Crude oil for July delivery climbed to $58.60 a barrel before settling at
$58.47, up $1.89. Some traders said oil might reach $70 a barrel, driven
primarily by demand in China and the United States. Fears over what might
affect the supply, rather than what is actually affecting it, appeared to
inject anxiety into the market.

"In this environment, we cannot afford to have any disruptions," said
Thomas Bentz, senior energy analyst at BNP Paribas Commodity Futures. "We
are still in the uptrend." The closing on Friday of the consulates of the
United States, Britain and Germany in Lagos, Nigeria's largest city,
because of reports of threats from Islamic militants put traders on edge.
Nigeria supplied the United States with more than 1.1 million barrels of
oil a day in April.

The possibility of a terrorist attack in Nigeria was enough to tap the oil
market's fear that demand-driven pressure on prices might evolve into a
full-blown supply-driven crisis.

A sudden restriction of supplies led to the oil shocks of the 1970's, and
the lack of spare production capacity, particularly of the types of crude
oil easy to refine into gasoline, has made the markets vulnerable to
whispers of any potential disruption.

So do the opinions that oil is still relatively cheap. Adjusted for
inflation, oil is less expensive than it was in 1981, when Iran choked off
oil exports. The average cost of oil used by American refineries at that
time was $35.24 a barrel, or $75.44 in current dollars, according to Bloomberg.

One of OPEC's concerns is that oil prices will quickly climb to a level
where many car owners decide to switch from sport utility vehicles to
compact cars, or possibly, to public transportation or carpooling. Such a
change in driving habits, while still considered unlikely, might produce a
scary outcome for oil-producing countries: a crash in oil prices.

"When I go to neighborhood parties, people are always asking me when
gasoline prices are coming down," said David Pursell, a principal with
Pickering Energy Partners, an energy investment firm in Houston. "Well, I
always reply, 'When are you going to start riding the bus?' There's lots of
angst, but not enough to keep us from $60 oil."

Not everyone is convinced oil prices will continue to soar. Andy Xie, the
greater China economist for Morgan Stanley in Hong Kong, predicted a sharp
decline in prices, citing signs of softer demand in China, the
second-largest petroleum consumer after America; Chinese oil imports fell
1.2 percent in the first five months of this year.