Oil price set to stay above $50 a barrel

OIL reserves are running down. Forecasters suggest the average oil price will stay above $50 a barrel over the next two years.

That stance on where oil is headed implies they will fall after that. Some experts disagree strongly.

In a recent survey, Goldman Sachs suggested buying oil forward at $56pb looked like a good investment.

Oil production is nearing a peak and we are finding no large wells.

The difficulty is that all of the key geological areas known to contain large quantities of the black gold and of gas were discovered decades ago. Concerns about estimated reserves in the Middle East raise fundamental doubts about how long the oil will last. Some fear it will be gone in another 60 years unless we cut consumption drastically.

That doesn’t square with the drive for economic growth, and fears are growing that the drive for growth will drive oil prices sky-high and leave the world in a prolonged recession while it adjusts to significantly lower growth levels.

Options are limited, sceptics warn. Demand is rising and that set against the global ability to meet it, suggests oil and gas prices have entered a new era. To keep the issue in perspective, crude oil would need to hit $95pb to get us back to the last all-time high that we hit in 1980. The $95pb is the price adjusted for inflation in the interim period.

Global oil demand is rising and consumption with 86.7 million barrels a day in 2006, up from 84.7m projected for this year, is a cut of 100,000bpd than previously estimated.

Crude oil prices fell on world markets after OPEC comments suggesting an increase in production output. Markets also anticipated rising inventories in the US.

As a result, New York sweet crude for delivery in July, fell 73 cents to $53.76 a barrel on Tuesday and prices were down to $53.64 yesterday.

In London, the price of Brent North Sea crude oil for delivery in July lost 54 cents to close at $53.13 a barrel.

One key to the decline were comments from the president of the Organisation of Petroleum Exporting Countries, who said he would propose a 500,000 barrel a day hike in the cartel’s output ceiling.

But Sheikh Ahmed Fahd al-Sabah, who is also Kuwait’s energy minister, said the proposed rise would not add to the 11-member cartel’s current actual production because it was already overproducing.