Rising Consumption, Stagnant Production and Low Reserves Means Oil Prices Will Stay High Analysis By Peter Zeihan Special to ABCNEWS.com Sept. 22  If you think the price of oil is high now, just wait a few months.

Rising energy consumption, stagnant production of crude oil, low reserves and bottlenecks all along the global supply chain will combine to keep prices at current high levels, $35 to $40 per barrel, until spring  even if Saudi Arabia increases production, as its government has promised. The entire world supply and delivery system is so strained that any disruption, such as a conflict or major labor action, would push prices even higher. The world will probably see $45 barrels of oil soon.

On Sept. 18, Saudi Arabias Crown Prince Abdullah bin Abdel Aziz, the countrys heir apparent, said that his government would increase oil production immediately to bring down prices. But any increase by the Saudis will only barely keep pace with surging demand. The stage is instead set for a very tight oil market in the coming 12 months. Only the Saudis  now pumping about 8.5 million barrels daily  can pump much more, about 2 million more barrels per day. But global consumption is rising and winter weather alone will boost the use of oil by about 1 million barrels every day.

From oil fields to refineries and shipping terminals, the global petroleum system is nearly at full capacity as it is. The 1998 slump in oil prices soured petroleum companies from making new capital investments. While many new projects are underway  from the west African coast to the Gulf of Mexico  only a handful will come on line soon, most likely in fields in Central Asia by 2002.

World Reserves Running Low Around the world, stocks of reserves are low. The U.S. reserve amounts to less than a 60-day supply. Heating oil stocks are down 20 percent. Refineries are nearly running at full capacity. The United States is the worlds largest refining nation and its refineries are running at 90 percent of their capacity.

The system for shipping oil couldnt handle much more oil, even if it was pumped and refined in a timely fashion. The price of using ocean-going tankers has doubled in the last two years, as old ships have been scrapped and new ones havent been built.

With little margin for error, the global petroleum system is now susceptible to disruptions and dramatic price spikes. Significant oil spills, shut downs due to weather as have occurred in the Gulf of Mexico, or protracted conflict can cause the price of oil to rise. In Colombia, for instance, bombings have repeatedly shut down a major pipeline for weeks on end.

Peter Zeihan is an analyst covering international energy and economics issues for Stratfor.com, an Internet provider of global intelligence.

http://www.abcnews.go.com/sections/world/DailyNews/stratfor.html

-- Martin Thompson (mthom1927@aol.com), September 22, 2000