MADRID, Spain, (AP) – As crude soared to a new record, the head of the International Energy Agency declared that the world was in the grip of an “oil shock,” and the president of OPEC acknowledged he could not say whether prices would flatten out or continue to soar.
The comments by IEA chief Nobuko Tanaka, OPEC chief and Algerian Energy minister Chakib Khelil and other industry leaders at the 19th World Petroleum conference reflected the concern surrounding record oil prices that seem ready to spike higher.
An IEA report released at the conference confirmed what most consumers fear: that supplies of oil will remain tight, whether for cooking fires in the poorest countries or powering cars and cooling or heating homes in the richest. And that’s despite record prices and reduced demand as costly crude dampens the world’s oil hunger.
Reflecting the world’s oil price doldrums, light, sweet crude for August delivery rose 97 cents to settle at a new high of $140.97 a barrel on the New York Mercantile Exchange. Prices at one point rose as high as $143.33, just 34 cents shy of Monday’s trading record.
“We are clearly in the third oil price shock,” declared Tanaka, comparing the effects to periods of soaring prices in the 1970s and 1980s.
But he suggested there is less of a likelihood of a quick fix this time.
“Those price peaks forced consumers into saving oil” and oil companies to look for new wells, said Tanaka, but now “the biggest energy savings have been made (and) … the easy oil outside (of) a few countries has been found.”
His agency’s report said the world’s estimated daily oil needs would rise from 86.87 million barrels this year to 94.14 million barrels in 2013 — less than anticipated in its 2007 report because of skyrocketing prices.
The energy agency predicted producers would be able to meet world needs — but noted that supply will exceed projected demand only by a daily 2 million barrels, a relatively thin cushion.
Tanaka said that tight supplies despite a price surge that would normally lead to increased availability came as a “shock.”
His comments reflected the high-level bedevilment at the meeting about what is causing prices to sizzle.
In Jeddah, Saudi Arabia, earlier this month, the kingdom said it would add 200,000 barrels per day in July to a 300,000 barrel per day production increase it first announced in May, raising total daily output to 9.7 million barrels. Production increases normally check prices, but the market has shrugged off the Saudi gesture and set several new records since.
Khelil, the OPEC president, offered no solace to consumers.
“We are very uncertain about the oil prices since it’s highly volatile and we don’t really know whether it is going to be stabilizing or going to lower levels,” he told delegates. “But everybody agrees that oil prices are too high.”
“There is a lot of uncertainty about demand,” Khelil said. “Consequently there is a lot of uncertainty about the decision of investing” the tens of billions of dollars needed to make additional crude and refined supplies available.
He identified the main driver of prices as the weak U.S. dollar and the linked subprime crisis in America; geopolitical tensions, and increased emphasis on U.S. bioethanol production which he suggested diverted production of diesel and led to shortages.
Urging the world to brace for a “really big reshuffle” in energy expectations, Christophe de Margerie, CEO of French energy giant Total SA, said he expected oil production to plateau in just 12 years at 94 million barrels a day — less then 10 million barrels more than available now. And he warned the forecast was optimistic.
“We will have to fight against the natural decline of (present) oil fields,” he told the same forum Khelil attended. “It will not go smoothly.”
Producers and refiners in the Spanish capital are also looking to find answers not only on how to ensure stable supply, but also on doing it in a way that minimizes emissions of the greenhouse gases believed to cause global warming.
Still the primary concern at the meeting was over availability and prices that have been bouncing from record to record over the past few months — a worry echoed by de Margerie.
Consumers worldwide “expect a better environment,” he said. “But they expect first access to energy.”