Growth will keep oil rising until 2010

GLOBAL economic growth will keep oil prices rising to 2010 and the price per barrel could go above $100 (€78.50) per barrel in the meantime, according to an Irish oil analyst.

In that context “Irish companies would be well-advised to consider locking in fuel costs at present levels,” said Paul J Harris, head of energy and emissions at Bank of Ireland Global Markets.

The impact on business of higher energy prices is already being felt, he said.

Fyffes has warned of a €9 million fall in profits attributable to increased shipping costs.

And Aer Lingus has introduced fuel surcharges as fuel prices begin to bite, Mr Harris said.

“The key issue is simply this: if the impact on companies is already being felt with an oil price move this year from $57pb to $75pb (€44.72 to €58.84), how will business cope with costs of up to $100pb?”

So far this year the effect of the rise in oil has been partially offset by a strong euro relative to the dollar.

But a rebound in the greenback would exposure companies to the full force of the commodity price move, Mr Harris argued.

For the rest of the year, the risk is that oil will go higher as supply continues to outstrip demand.

The US consumes 25% of the world’s oil, with China and India between them accounting for 11% — and this figure is rising.

The annual growth in consumption is around 3m barrels per day. Add to that the fact OPEC is close to capacity and the relative inelasticity of demand points to significant price rises as economies continue to grow, Mr Harris said.

Last year the price of crude rose 37% between May and September, largely driven by demand and the hurricane season in the US and no one knows what lies ahead this season, he said.

“If one was to believe the long-range Gulf of Mexico weather forecasts — that predict up to 30 tropical storms — and the associated interruptions they would bring, a 37% increase in price from now would take us comfortably through the $100pb price level.”

And he said that in the current climate, it will take time for renewable and nuclear energy to fill any oil supply shortfall.

The oil price shocks in 1973 and 1979 were due to lack of supplies, he said.

But since 2002 the price rises have been driven by demand, a fact that has added a new dimension to the outlook for the global economy, said Mr Harris.

Some 60% of the worlds proven reserves are to be found in Saudi Arabia, Iraq, United Arab Emirates, Kuwait and Iran. Venezuela, Russia, Libya, Mexico and Nigeria make up the remainder of the top 10.

These 10 nations control more than 83% of the worlds proven reserves.

In political terms these countries are — with only a few exceptions — unstable, and do little to inspire future confidence about where oil prices are headed, Mr Harris said.