Oil Hits All-Time High Amid Peaking Supplies, Soaring Demand

…Production from the North Sea continues to fall from its 2000 peak, while Nigeria, a top global exporter, is struggling to keep crude flowing in the face of a bitter insurgency targeting Western oil operations. Meanwhile, conflicts in the Middle East continue to simmer with the specter of a clash with Iran looming large over the Persian Gulf, the source of 28% of global crude exports.

Perhaps most worrisome for oil markets are growing indications that Saudi Arabia, the world’s top oil exporter, may have peaked. Crude output has fallen 10% over last year and many observers say the desert kingdom — and by extension OPEC — may be unable to boost flows to cool prices.

“A new meta-concern is beginning to take hold,” says Richard Katz with SF Informatics, an energy-education organization based in San Francisco. “Everywhere you look, crude production has either hit a plateau or is declining.” If the trend continues, he says, world oil production as a whole may tip into permanent decline, if it hasn’t done so already. “Welcome to peak oil,” says Katz.

Despite skyrocketing prices, the world’s thirst for oil remains as strong as ever, raising fears of further spikes. Americans are hitting the road in record numbers this summer and business activity appears brisk, with the economy growing at an annual rate of 3.4% in the second quarter. Meanwhile, rapidly industrializing nations such as China and India have emerged as powerful new draws on oil supplies.

The combination of anemic supply and surging demand has some market watchers predicting stratospheric oil price levels within months. Goldman Sachs now says that $100 oil may be months away and CIBC World Markets says it could arrive next year.

SF Informatics