$100 OIL: Crosses Line After Yrs Of Diverging Demand, Supply

…Analysts and industry experts caution that there are always unknowns with any long-term energy forecast, but many have become confident of the notion that there is now a higher long-term “floor” for oil prices. The major oil companies are making investment decisions based on whether projects make sense at $40-$50 per-barrel, as opposed to $20-per-barrel a few years ago, said Cambridge Energy Research Associates Chairman Daniel Yergin.

“Whatever the floor is, we’re certainly in a new era as far as oil prices,” Yergin said. “In the early part of the decade, we were looking backward to the Asian financial crisis. Now we’re looking forward” to a world marked by strong energy demand, increased political risk and rising operating costs – and complicated by a weaker U.S. dollar, and uncertainty about the U.S. economy,” he said.


Weatherford International Ltd. (WFT) Chief Executive Bernard Duroc-Danner likens the world’s global oil resource base to an athlete that has reached middle-age and requires more maintenance to perform. In terms of oil-industry dynamics, that means it costs more money to produce less oil.

“The underlying resource base is older, less able to grow and there isn’t any spare capacity,” Duroc-Danner said.

In terms of oil prices, this shift means $40-$50 per-barrel in the new era, as opposed to a range of $14-$22 in the previous one, Duroc-Danner said.

A price lower than $40 is possible, but not likely, he added.

There have been political factors in recent years that have depressed oil output also and which show no signs of abating. These include languishing oil production in Venezuela due to an overhaul of national oil company Petroleos de Venezuela ASA (PVZ.YY) under President Hugo Chavez, and the impact of the Iraq war, which depressed Iraqi output for years until this fall.

Without endorsing the notion of “peak oil,” some leading oil companies have begun describing petroleum resources as increasingly constrained. These include ConocoPhillips (COP) and Chevron Corp. (CVX), whose chief executive, Dave O’Reilly, declared famously in 2004 that “the time when we could count on cheap oil and even cheaper natural gas is clearly ending.”

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